Himal,
You can get Apache's Xalan-Java xslt processor here -
http://xml.apache.org/xalan-j/ Read the instructions there as to how to install it and make sure that you got everything right after setting all the CLASSPATH variables properly by running the command (from a msdos prompt)
java org.apache.xalan.xslt.Process
All this stuff is given in there.
The reason why it failed to open the xml file in IE for you is the missing / for the closing catalog tag as Dan pointed out; Also
you should have the xsl file in the same directory as your xml so that IE can apply the stylesheet on ur xml document and show you the result in IE.