There are two immediate solutions:

Solution 1.

You can first apply a simple transform to the two documents that will delete the elements that should not be compared. Then, compare the results ing two documents -- exactly with your current code. Here is the transformation:

<xsl:stylesheet version="1.0"
 xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
 <xsl:output omit-xml-declaration="yes" indent="yes"/>
 <xsl:strip-space elements="*"/>

 <xsl:template match="node()|@*">
  <xsl:copy>
   <xsl:apply-templates select="node()|@*"/>
  </xsl:copy>
 </xsl:template>

 <xsl:template match="Name|Team|Pos"/>
</xsl:stylesheet>

When this transformation is applied to the provided XML document:

<Stats Date="2011-01-01">
    <Player Rank="1">
        <Name>Sidney Crosby</Name>
        <Team>PIT</Team>
        <Pos>C</Pos>
        <GP>39</GP>
        <G>32</G>
        <A>33</A>
        <PlusMinus>20</PlusMinus>
        <PIM>29</PIM>
        <PP>10</PP>
        <SH>1</SH>
        <GW>3</GW>
        <Shots>0</Shots>
        <ShotPctg>154</ShotPctg>
        <TOIPerGame>20.8</TOIPerGame>
        <ShiftsPerGame>21:54</ShiftsPerGame>
        <FOWinPctg>22.6</FOWinPctg>
    </Player>
</Stats>

the wanted resulting document is produced:

<Stats Date="2011-01-01">
   <Player Rank="1">
      <GP>39</GP>
      <G>32</G>
      <A>33</A>
      <PlusMinus>20</PlusMinus>
      <PIM>29</PIM>
      <PP>10</PP>
      <SH>1</SH>
      <GW>3</GW>
      <Shots>0</Shots>
      <ShotPctg>154</ShotPctg>
      <TOIPerGame>20.8</TOIPerGame>
      <ShiftsPerGame>21:54</ShiftsPerGame>
      <FOWinPctg>22.6</FOWinPctg>
   </Player>
</Stats>

Solution 2.

This is a complete XSLT 1.0 solution (for convenience only, the second XML document is embedded in the transformation code):

<xsl:stylesheet version="1.0"
 xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
 <xsl:output omit-xml-declaration="yes" indent="yes"/>
 <xsl:strip-space elements="*"/>

 <xsl:variable name="vrtfDoc2">
  <Stats Date="2011-01-01">
    <Player Rank="2">
        <Name>John Smith</Name>
        <Team>NY</Team>
        <Pos>D</Pos>
        <GP>38</GP>
        <G>32</G>
        <A>33</A>
        <PlusMinus>15</PlusMinus>
        <PIM>29</PIM>
        <PP>10</PP>
        <SH>1</SH>
        <GW>4</GW>
        <Shots>0</Shots>
        <ShotPctg>158</ShotPctg>
        <TOIPerGame>20.8</TOIPerGame>
        <ShiftsPerGame>21:54</ShiftsPerGame>
        <FOWinPctg>22.6</FOWinPctg>
    </Player>
  </Stats>
 </xsl:variable>

 <xsl:variable name="vDoc2" select=
  "document('')/*/xsl:variable[@name='vrtfDoc2']/*"/>

 <xsl:template match="node()|@*" name="identity">
  <xsl:param name="pDoc2"/>
  <xsl:copy>
   <xsl:apply-templates select="node()|@*">
    <xsl:with-param name="pDoc2" select="$pDoc2"/>
   </xsl:apply-templates>
  </xsl:copy>
 </xsl:template>

 <xsl:template match="/">
  <xsl:apply-templates select="*">
   <xsl:with-param name="pDoc2" select="$vDoc2"/>
  </xsl:apply-templates>

  -----------------------

  <xsl:apply-templates select="$vDoc2">
   <xsl:with-param name="pDoc2" select="/*"/>
  </xsl:apply-templates>
 </xsl:template>

 <xsl:template match="Player/*">
  <xsl:param name="pDoc2"/>
  <xsl:if test=
   "not(. = $pDoc2/*/*[name()=name(current())])">
   <xsl:call-template name="identity"/>
  </xsl:if>
 </xsl:template>

 <xsl:template match="Name|Team|Pos" priority="20"/>
</xsl:stylesheet>

when this transformation is applied on the same first document as above, the correct diffgrams are produced:

<Stats Date="2011-01-01">
   <Player Rank="1">
      <GP>39</GP>
      <PlusMinus>20</PlusMinus>
      <GW>3</GW>
      <ShotPctg>154</ShotPctg>
   </Player>
</Stats>

  -----------------------

  <Stats xmlns:xsl="http://www.w3.org/1999/XSL/Transform" Date="2011-01-01">
   <Player Rank="2">
      <GP>38</GP>
      <PlusMinus>15</PlusMinus>
      <GW>4</GW>
      <ShotPctg>158</ShotPctg>
   </Player>
</Stats>

How this works:

1. The transformation is applied on the first document, passing the second document as parameter.

2. This produces an XML document whose only leaf element nodes are the ones that have different value than the corresponding leaf element nodes in the second document.

3. The same processing is performed as in 1. above, but this time on the second document, passing the first document as parameter.

4. This produces a second diffgram: an XML document whose only leaf element nodes are the ones that have different value** than the corresponding leaf element nodes in the first document

After a couple days of messing around, I found a solution that I think works for me. Maybe it could work for other people as well.

The MS XML Diff and Patch tool was a viable option. When you Diff first file against the second file it creates an XML "DiffGram" listing what changes it detected between the two XML files.

To take care of all 3 rules that I listed above, I Diff'd the two files in one direction, then opened the DiffGram file using Linq-to-XML and Removed all the "Add" and "Remove" lines.

XNamespace xd = "http://schemas.microsoft.com/xmltools/2002/xmldiff";
var doc = XDocument.Load(_diffGramFile);
doc.Root.DescendantsAndSelf(xd + "add").Remove();
doc.Root.DescendantsAndSelf(xd + "remove").Remove();

Then I patched up (merged) this edited diffgram against the first file and created a partially merged temporary file. This takes care of Rules 1 and 2.

Next, I Diff'd the partially merged file against the first file used. Then opened the new DiffGram and removed all Change references to "UseExistingValue".

var newdoc = XDocument.Load(_diffGramFile);
newdoc.Root.DescendantsAndSelf(xd + "change")
      .Where(x => x.Value == "UseExistingValue").Remove();

And merged this edited DiffGram against the partially merged file which takes care of Rule 3. Saving this out to XML then produces the final XML merged according to the rules defined above.

Hopefully this can help out other people.

HINT: After installing the XmlDiffPatch library, the XmlDiffPatch DLL can be found in C:\Windows\assembly\GAC\XmlDiffPatch\1.0.8.28__b03f5f7f11d50a3a\XmlDiffPatch.dll

Giving this some thought, I figured if there was a way to sort the xml files from command line, then I could just do a diff against the files.

My follow up googles to my thought lead me to the following: https://superuser.com/questions/79920/how-can-i-diff-two-xml-files

In the above, the key was the canonical xml sort. Since I'm using a mac, the above gave me the following for my problem, which worked me:

$ xmllint --c14n File1.xml > 1.xml
$ xmllint --c14n File2.xml > 2.xml
$ diff 1.xml 2.xml

The above should also work for you if you are on linux, or are using something like cygwin installed/setup with windows.