OK - I wasn't sure what Jason was referring to. The line you quote is the format recommended in all the XSL references I have read. It's also the format used in the W3Schools web tutorials - for example check out the following link (which incidentally transforms nicely in Mozilla!)
Your comments led me to experiment however and what I discovered was that if I rename my xsl stylesheet and give it a .xml suffix then it works fine. It may be that my ISP server doesn't properly serve up the .xsl mime-type - though why that doesn't also affect Internet Explorer is a mystery to me.
update: I copied the w3schools xml and xsl files to my site and got exactly the same behaviour - transformation with IE but not Mozilla, even though Mozilla does successfully transform these same files when I access them directly from w3schools.com. The problem must therefore be due to the way my site server is dishing up the files.