Using saxon 8.4, before posting my last answer, i tested with:

<xsl:stylesheet
   version="2.0"
   xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
  xmlns:xs="http://www.w3.org/2001/XMLSchema"
>


<xsl:template match="/">
 <xsl:variable name="foo" as="item()*">
   <xsl:text/>abc<xsl:sequence select="'def'"/>
 </xsl:variable>
 
a: <xsl:value-of select="$foo"/>	
b: <xsl:value-of select="$foo" separator=""/>	
</xsl:template>

</xsl:stylesheet>


I get

$ saxon8 seq2.xsl seq2.xsl
<?xml version="1.0" encoding="UTF-8"?>

a: abc def
b: abcdef

but now I note I was using <xsl:sequence  rather tahn xsl:value of, if I
put it back as you had it

 <xsl:variable name="foo" as="item()*">
   <xsl:text/>abc<xsl:value-of select="'def'"/>
 </xsl:variable>
 
I get


a: abcdef
b: abcdef


as you indicated.

At this point you run out of information that comes straight from my
head, I'd have to read the spec, and you can do that as well as me,
day job calls:-)
note xsl:sequence is making a string and xsl:value of a text node
but you'd need to check the exact rules for the sequnces in this
context...


David

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