me> makes a sequence of length 2, a text node and a string,

For the record, Mike's answer was more acurate (you get a sequence of 2
text nodes, not a node and a string. xsl:value-of and xsl:text both make
nodes rather than strings). Rest of my answer was OK though.

In this case you could probably avoid the whole problem as

<xsl:variable name="normsrc" as="xs:string"
  select="replace($xsrc,'^.*/images/','images/')"/>

David