@odedta,
It has always been possible to use either file extension, I don't believe it makes a difference one way or another.
http://www.w3schools.com/html/html_xhtml.asp
EPUB of every stripe requires XHTML structure (no permissive parsing like webdesign) and should have the application/xhtml+xml mimetype, but file extensions don't matter much.
@Firebrand007,
I don't see the
Code:
<nav epub:type="toc" id="toc">
section in your nav.xhtml