Resolution: Currently as mentioned in the BW docs, only XSDs & DTDs are supported in BW. We have no plans to support XDRs. It seems XDR's are a Microsoft format which Microsoft has pretty much deprecated and moved away from. Looks like XDRs use xmlns in a different way than either DTDs (which don't really have namespaces) or XSDs. That is why the validation is getting confused by the xmlns. It is treating it as if it were an XSD.
To get around this problem, try removing the xmlns part from the input XML before using it in the Parser XML task. Please NOTE that this is NOT a workarounf, but the correct way to do in BW.