> Can you please clarify on how to eliminate xsl:namespace in the example > I've
> provided?

If we take your code and expand it into a full example, it could look like this:
...

No. It could be a function building element with attribute of type xs:QName.
The goal is to ensure that one can reconstruct QName with resolve-QName().

If you cannot reliably know that namespace declaration appears somewhere
higher in the tree, then you neen to declare namespace at element level.

<xsl:function name="t:create-schema-element" as="element()">
 <xsl:param name="name" as="xs:string"/>
 <xsl:param name="type" as="xs:QName"/>