There was an annoucement recently from IBM (http://webspherecommunity.blogspot.com/2009/04/was-open-xml-feature-pack-beta.html), about availability of "WAS XML Feature Pack Open Beta" supporting XPath 2.0, XSLT 2.0 and XQuery 1.0. It was good to know this.
Therefore, users would be able to use XPath 2.0, XSLT 2.0 and XQuery 1.0 in a WAS environment, using IBM's own processors for these languages.
This is an early preview release, with more enhancements expecting to come later.
I'm looking forward to try these language processors myself.