Wow, lots of snow fell.
pesco, why invent a new syntax? The advantage of XML is not that it's particularly elegant, but rather that it's widely used. There are some nice feaures -- the end tags add a level of redundancy/error checking for example that is particularly useful for markup that can't easily be checked by computer as "right" or "wrong". And there are some less nice features. But most of the interesting research is at the edges (as Tommie Usdin said in her keynote at the Extreme Markup conference this year).
To be sure, there are experiments with alternate syntaxes, such as LMNL, an experimental markup language supporting overlap and structured attributes. Overlap is probably the biggest driving force in markup research at the syntax level today, although most people still try to stay within the bounds of XML in order to take advantage of all that XML software and understanding.
You mention functions. I claim that well-designed XML markup vocabularies are declarative in that they indicate a result or a meaning, if you will, rather than giving an algorithm. Of course, XSLT and XML Query straddle the boundary here. But they operate on XML documents, and those documents can be used and interpreted in many ways. Consider taking an SVG document and producing a set of colour swatches representing the colours used in the image described.
I see a lot of proposals for alternatives to XML, and I'm always interested to see use cases and hear what is being solved that XML can't do. Sometimes people think XML can't do things that it can; sometimes they think that a "more elegant" solution will appeal to a wider audience (but very rarely can people from such widely differing communitues as XML users agree on "elegant"), forgetting that it is not elegance that drives the adoption of XML; sometimes they genuinely have new ideas, or things they really can't do with XML.
We recently created a Working Group at W3C to investigate efficient interchange of XML; even Microsoft, who vociferously and publicly opposed the creation of the Working Group, have since said they'll consider using the result if it meets their needs, or if their customers demand it (and they do). Of perhaps more interest to you, we also created an XML Processing Model Working Group to standardise upon a way to say how an XML document is to be processed. It's a sort of functionjal scripting language for XML, or that's what I hope it will be. The processing model work is being done in public view, so you can watch, and maybe also get involved.
[disclaimer, in case it is not obvious: I am the XML Activity Lead at W3C]