Just FYI - Never did get that to work for me, but...
I added another parameter to the module settings called MyAlias
set the value to the url of my site alias: http://localhost/mysite/portals/
Then, added the parameter to the xsl
<xsl:param name ="MyAlias"/>
Then, when I referenced an img src coded it like this:
<img src="{$MyAlias}{$PortalId}/MyImage.jpg" border="0" width="254" height="34" alt="MyImage" />
That worked for me, though a bit kludgy.
Rather, than go through all that fuss a bother for my local xml stuff, I include the imgURL attribute in the xml file with the text like this:
<imgURL>http://localhost/MySite/portals/0/MyImage.jpg</imgURL>
Then, I'm done with it.