Whether you use a CATALOG of not, each ENTITY must be defined in the declaration subset of the document. As the FOSI is an SGML instance, it can understand and use a CATALOG. The CATALOG (in SGML and Epic, but not some other XML only applications) serves the purpose of the SYSTEM identifier.
One thing to be aware of in Epic (Arbortext are you listening to this????) is that even if you put a SYSTEM identifier (as REQUIRED in the XML standard) along with your ENTITY declaration (or DTD for that matter [hint hint]), Epic will use any CATALOG entry that matches (even if it is not what you expect) ahead of the SYSTEM identifier in the document.
I just downloaded Epic 5.0 and haven't installed it here at work (yet). So maybe they have fixed this in 5.0. I know from (very) recent frustration this is not the case in 4.4. Catalog is read first, then the SYSTEM ID and the Catalog is what the call in supply terms FIFO (First In, First Out)
I did get a case number for the Style Set List issue, but I'm afraid I can't find the Mail I received anymore. All I can remember is that support said thankyou to our German distributor for reporting it. Perhaps you can tell support this.