Had a long discussion with Greg about how to proceed, and what our goals are. This is what we're aiming for:

1. Cocoon will Xalan (default XSLT processor), Saxon 6 (as another option for XSLT 1), and Saxon 8 (the only currently-available processor for XSLT 2.0). These will be called "xslt", "saxon6" and "saxon8" for the purposes of sitemap pipelines.
2. Schemas and DTDs will be ignored for the purposes of eXist, and eXist will be set to NOT validate on upload. This is simpler and more efficient. Projects can provide access to schemas and DTDs through normal pipeline serialization.
3. NO projects will live in the Cocoon root folder at all. Each project will have its own user on the system, and Stew, Greg and I will be added to that user's group (along with anyone else who might work on the project, such as Karin). Project data for Cocoon will live in a webapps subfolder of the user's home directory. This will be mapped, via Cocoon sitemap configuration, to a path like such as .../cocoon/emls, where emls is the user name and the project data resides in ~emls/webapps.
4. External processors such as XEP will be installed outside Cocoon, and Cocoon will be configured to find them wherever they are. This enables us to fulfill our licensing conditions (one install of XEP) while accessing it from multiple instances of Cocoon.

The implementation and testing of this will be broken down into separate tasks and assigned to Greg and me.