Here is a really nice wrap up by Mike Kay on what benefits XSLT gets from using XML syntax:
I think the benefits are:And there is a misconception about XQueryX (XML syntax for XQuery). XQueryX isn't an alternative way to write XQuery queries using XML syntax (that way is called XSLT). It's more like formalized standard XML based AST format for XQuery processors. It's designed to be unconvenient to read and write by humans. It's just ridiculously wordy and low-level.
(a) many stylesheets consist of two-thirds data to be copied into the result tree, and one-third instructions to extract data from the source document. An XML-based syntax is beneficial for the two thirds that is data, because it means the code in the stylesheet is a template for the final result. This also facilitates a development approach that starts with graphical designers producing a mock-up of the target HTML or XSL-FO page, and then handing it over to a programmer to add the control logic. (XQuery has recognized this by using an XML-like syntax for element constructors, but there's a lot of difference between being XML-like and being XML.)
(b) XSLT inherits all the lexical apparatus of XML: entities, character references, Unicode encoding, normalization of line endings and whitespace, namespaces, base URI, and whatever the core WG dream up next. That means there's only one set of rules for users to learn; it means there's a lot less detail for the WG to reinvent and possibly get wrong; it means users can take advantage of XML editing tools; and it gives implementors a head start.
(c) It's surprisingly common, especially in large applications, to see stylesheets being used as the input and/or output of a transformation. My favourite example is an online banking system that had 400 screens each generated by its own stylesheet, but all 400 stylesheets used a common look-and-feel which was achieved by generating them from a master database containing rules for all the different kinds of content that could be encountered. It's not obvious how one would do that in XQuery: one could go some way with a function library, but not nearly as far (especially without polymorphic functions). (And since queries aren't XML, I can't even search for all the queries that invoke a particular function, without a meta query language!)
(d) One of the original arguments was that for client-side applications, especially in small-footprint devices, only one parser would be needed rather than two. However, I've no idea whether this argument stands the test of time.
(e) XML vocabularies can be nested. We had no difficulty recently adding the capability to have an inline schema within a stylesheet for describing its working data, because XSLT and XML Schema are both defined in XML. Similarly stylesheets can be embedded in other XML documents, for example in the source document to which they apply, or in a pipeline processing language.
(f) One unpredicted benefit, I think, is that the XSLT syntax ends up being more systematic, extensible, and robust. It's much easier to add another attribute to an XSLT instruction than to extend the XQuery grammar, and it's much easier for a compiler to catch all the syntax errors in one run.
Historically, a lot of the motivation for XSLT being in XML was the experience of DSSSL, where the unfamiliar LISP-like syntax was widely regarded in retrospect as the reason for the lack of take-up. It was intended that XSLT should be writable by non-programmers, and I believe that often happens. In fact I have heard it said that non-programmers have far fewer conceptual problems with the language than JavaScript or SQL programmers do.