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While working on bug #526273, I found that the USE_BACKEND variable from xmlto to the backend is hard-coded at "DEFAULT" and there is no facility to change it. If it were changeable, then bug #526273 could be mooted to some extent by setting USE_BACKEND=DBLATEX, which does appear to process that .xml file with a satisfying rc=0 exit grin.
Sorry, but that's not a bug. You should not modify that parameter this way, it is just for internal use within the xmlto script. When you specify --with-dblatex parameter to xmlto, USE_BACKEND is set automatically to DBLATEX ... This USE_BACKEND=DEFAULT is filled at configure time due to request from debian, as they use dblatex or fop as default backend instead of passivetex. So closing NOTABUG ... Please read documentation (intentionally there is NO information about USE_BACKEND, as you should not modify it). Additionally - #526273 seems to be passivetex issue - xmlto is just simple shell script and all processing is done by it's backends. I'll check what could be done with this, but many such issues simply could not be fixed easily (as passivetex is hard-to-maintain package with dead upstream).
You're right, I didn't see the --with-dblatex option.