4.2.1 Steps DEv / rule 1 / premise 1 dynEnv.varValue($fs:dot) = Value1 $fs:dot is a VarRef, but the domain of varValue is Variable. Change to (FS-URI,"dot") as in STA / rule 1.
The fix for this bug does not appear in the Recommendation of 23 January 2007. It will be considered for a future publication (either an Errata document or some possible future version of the specification).
This issue has been entered as FS erratum E050, and the fix has been committed to the source files for the next edition of the FS document. Consequently, I'm marking this issue resolved-FIXED, and CLOSED.