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The style sheet at http://homepage.ntlworld.com/i.obeirne/CSSValidator/cv221105.htm is a) valid XHTML1.1 b) Valid CSS and c) contains a valid, embeded style sheet. However, the validator no longer reads the style sheet and consequently does not validate it. :-(
Not sure whether the problem is only UI or something deeper, but it is indeed abnormal that the validator should claim that "no stylesheet was found" when it obviously found and parsed (it does produce warnings) some style rules from the HTML.