In the BizTalk Server 2004 SP1 install instructions you will see we require a FIX to the .NET Framework. The fix specifically is for this issue:
If you import schemas from assemblies that contain redundant imports. For example, if Schema1.xsd imports SchemaA.xsd AND SchemaB.xsd. And SchemaA.xsd AND SchemaB.xsd both import Schema2.xsd. Without this fix you will receive the following error when you compile Schema1.xsd: “schemaLocation could not be resolved”
Right now the readme for SP1 directs you to http://support.microsoft.com/default.aspx?scid=kb;en-us;890673 which instructs you to call PSS to receive the fix. You really do want this fix and it wouldn’t be very efficient if you had to call PSS to get it would it. So instead download the Windows 2000 and XP version or the Windows 2003 version and enjoy BizTalk Server 2004 SP1.
We are tweaking the online readme with this information.