<xsl:sort select="bug_id"/>
That would select the bug_id element child from the current field
element.
However you don't have such an element, what you do have is
<field name="bug_id">1</field>
which would be field[(_at_)name='bug_id'] from the parent row element.
you have this xsl:sort in the xsl:for-each that is iterating over
fields, but i suspect that you want it on the outer xsl:for-each
that is iterating over the rows, to sort teh rows into bug id order.
Actually I don't think you want the inner for-each at all.
something like
<xsl:for-each select="mysqldump/database/table/row">
<xsl:sort select="field[(_at_)name='bug_id']"/>
<xsl:if test= "field[(_at_)name='status_id']='7']">
<xsl:if test="field[(_at_)name='resolution']='1']">
<ol>
<li><xsl:value-of
select="field[(_at_)name='title']"/></li>
</ol>
</xsl:if>
</xsl:if>
...
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