-dom xerces and XML not compatible?

I just noticed that if I use "-dom xerces" with an XML document, it seems 
to get returned unmodified....at least that is what is happening in one of 
the Barracuda examples that uses BTemplate directives in an XML 
document.  The directives pass through unmodified rather than being 
replaced by data.  If I use "-dom lazydom" or don't specify it at all, 
things work just fine; all directives are replaced by data.

Any ideas on why this would be?

Jake