If i understood your requirements well, you simply want:
(1) translate XML with XSL into XHTML
(2) update the XML with an XUPDATE document generated on basis of what the user submitted
To me it seems a bit complicated because you first have to generate an XUPDATE document, and then you still have to find an XUPDATE processor that isn't really available (afaik) for PHP yet. If you're going to implement one i would suggest that you implement one in XSL this way it becomes available for all platforms that have an XSL processor
The following seems easier (to me) and you can still present the
(1) generate XML with data coming from SQL DBMS and translate that XML into XHTML with a XSL
(2) update data in SQL DBMS on basis of what the user submitted
<off-topic->
A hierarchical model can be easily represented in terms of relationships (think about an abstract tree with one root, nodes and leaves)..
The real problem is that SQL and most SQL DBMS don't handle this kind of relationships well... Another proof that SQL is far from optimal to query 'True' Relational datbases

</off-topic>