A quick further note: I also have been testing some XSLT files I wrote for transforming XML to OpenOffice.org files; I just changed the version to 2.0 and everything continued to work. I guess I was unlucky enough to write transformations that didn't hit any of the type problems.
Yes, this may happen and is indeed a question of luck.
Specifying version="1.0" causes the XSLT processor to work in "backwards compatibility mode" but even in this case the XSLT processor uses the XPath 2.0 data model -- therefore it does not completely behave as an XSLT 1.0 processor.