Well, there's good news and there's bad news.
The good news is that index and indexterm are permitted inside a webpage
element whose DOCTYPE is website-full.dtd, and they do validate. I just
tested it. I'm not sure what's going wrong when you try it.
The bad news is that they don't do what you want them to do, which is
create
an index for your website. You have to keep in mind that each webpage
document is a separate XML document, and it is processed as a separate
document. That means the scope of an index can be no larger than one
webpage document. In order for the index to cover all your webpages, they
would have to be included as children of a larger container document
that is
processed all at once. But that isn't how Website works.
As it currently ships, Website can't collect index entries from the
set of
webpage documents and generate a sorted index.
Bob Stayton
Sagehill Enterprises
DocBook Consulting
bobs@sagehill.net