> Is the use of <seg-source> mandatory to
> translate an XLIFF 1.2 file?
It cannot because <seg-source> is not a mandatory element.
The real question is: If there is a <seg-source> in a <trans-unit>, is it mandatory to use it to translate that <trans-unit>?
The answer to that is no: There is nothing in the specification that says you must translate an XLIFF document using the provided segmentation. The same way there is nothing that says a tool must use any provided <alt-trans>, or <context-group>, etc.
Now, if a tool wants to support the segmentation provided in an XLIFF 1.2 document, it certainly should use the information stored in <seg-source> because it is the specified way of representing segmentation in 1.2.
Note also that 1.2 is the first version where a model to represent segmentation is defined in XLIFF.
Cheers,
-ys