Belated answer, yes, I know, but I couldn't find the one I was looking for here, so I thought I'd pay it forward with my solution.
My XML was a few nodes dumped from Drupal using export_node and drush. I was using the xslt processor in PHP5, which only supports xslt 1.0. Some EXSLT functions appear to be supported, but I couldn't tell whether my syntax was wrong or the function I was trying to use was not supported. Anyway, the following worked for me. I used the example code from w3schools.com, but added a line right after declaring the xsltprocessor, like below:
$xp = new XsltProcessor();
PHP has a trivial function for date conversion, so I cheated and used the PHP processor, since I was already using it to transform my xsl.
<xsl:value-of select="php:function('date', 'n-j-y', number(timestamp))"/>
Hope this helps someone out there. I was banging my head for quite a while as I worked this one out.