With 2.7.7 it does validate schemas when configured correctly but fails with schemas that have circular references to each other (not illegal according to W3C spec or their schema validator tool online). The schemas it's having trouble with are from the HL7 standards body, which are used by hundreds of companies. I tested the schema that it complains about using the W3C online validator like this:
It comes back and says (among many things):
The schema(s) used for schema-validation had no errors
I will attach two samples, one for 2.7.6 and one for 2.7.7. With 2.7.6, it validates correctly. With 2.7.7 it complains about a recursive reference. The problem it seems is that voc.xsd includes datatypes.xsd includes datatypes-base.xsd includes voc.xsd. The schema validator gets around to the recursive point and says:
Attempt to load a schema document from http://dl.dropboxusercontent.com/u/13558558/schematest/schema/HL7V3/NE2008/coreschemas/voc.xsd (source: include) for no namespace, skipped, already loaded
So the W3C validator sees the loop and knows its already been included so it ignores the recursion beyond the first loop.