The W3C has posted the proposed recommendation of XInclude. This draft includes many editorial clarifications, but doesn't make any real changes to the underlying syntax or semantics. There don't appear to be any fully conformant implementations yet. However, XOM's XIncluder class implements all the required functionality, and passes all the tests that don't depend on optional features. Comments are due by October 29.
The Gnome Project has released version 2.6.14 of libxml2, the open source XML C library for Gnome. This release improves W3C schema support and fixes various bugs. They've also released version 1.1.11 of libxslt, the GNOME XSLT library for C and C++. This is a bug fix release.