That is correct JDK 1.3( included with WAS V5.1.x ) includes its own version of xerces.jar.
You should be fine if you modify the classloader settings to pick up your Application xerces classes.
In WAS V4.x the default setting of the classloader was essentially PARENT_LAST, and in V5.1.x the default setting is PARENT_FIRST. So if you don't change the V5.1.x from PARENT_FIRST to PARENT_LAST the xerces classes from the JDK will get picked up instead of your Application's xercese classes. It it recommended that you change this setting at the Application level.