Within LibXML/LibXSLT, the values of the parameters passed in to the XSLT stylesheet for processing are treated as being XPath expressions to be applied to the source document. This allows you to pass parameters of type "node-set".
This is actually the same as if you modified your XSLT stylesheet to change the default value of the top-level xsl:param to <xsl:param name="param-name" select="param-value" />
As this behavior might be a bit misleading, the PHP/DOMXML binding defaults to "converting" every parameter value to a string, as if you modified your XSLT stylesheet to change the default value of the top-level xsl:param to <xsl:param name="param-name" select="'param-value'" /> (note the single-quotes around the value and enclosed in double-quotes).
If you want to turn back to the original LibXML/LibXSLT behavior, just pass TRUE as the "is_param_xpath" argument.