Try:
...
<xsl:apply-templates select=".//rect"/>
...
[EDIT]
If this does not help, you may try the following:
...
<xsl:apply-templates select=".//*[local-name()='rect']"/>
...
...
<xsl:template match="*[local-name()='rect']">
...
Maybe, there is a more elegant way, though, to ignore the element name spaces.
I had some issues while running this in VS2010. If I remove the DOCTYPE part and if I take away the namespaces, the first version works fine and instantly. With the original svg file content, VS2010 takes 10-15 seconds to run that (and only the second variant works).
[/EDIT]
Cheers
Andi