You ask two questions:
"Can the application fold embedded chunks in for styling processes." I
would answer: "of course." The application can do whatever it wants. Now
if the application claims to render documents according to XSL, then it
must do what XSL requires of hyperdocuments (documents linked together
by XLL(XML-LINK)). This has not yet been defined.
"Can the application fold embedded chunks in for valiation processes."
Again, the answer is "of course." The application can do whatever it
wants. *BUT* the definition of validation in the XML specification is
NOT defined for hyperdocuments. So you must figure out what validation
means for hyperdocuments in your application. The definition in the XML
spec. is not relevant for hyperdocuments.
Paul Prescod