Wrong access to out-of-scope xsl:variable not detected in certain circumstances

In the following very short stylesheet,
Template2 is refering to variable 'OutOfScope'
which is declared locally within Template1, not Template2.
This error goes undetected by XalanC version 1.7.0.
Note that if the declaration of variable "result"
surrounding the call to Template2 is removed,
that is, Template2 is called directly within Template1,
then Xalan complains that variable 'OutOfScope' is not defined.

<?xml version="1.0" encoding = "ISO-8859-1"?>
<xsl:stylesheet version="1.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform">

<xsl:template name="Template1" match="/">
<xsl:variable name="OutOfScope" select="."/>
<xsl:variable name="result">
<xsl:call-template name="Template2"/>
</xsl:variable>
<xsl:copy-of select="$result"/>
</xsl:template>

<xsl:template name="Template2">
<xsl:copy-of select="$OutOfScope"/><!-- ALG: This variable should not be
visible, should it? -->
</xsl:template>

</xsl:stylesheet>