I know this question is 2 years old, but thought I would answer it anyway.

I don't think you can 'ignore' the namespace, and your best bet may be to use a WITH XMLNAMESPACES clause:

SET ANSI_PADDING ON

GO

;WITH XMLNAMESPACES ('urn://valence.aero/schemas/airtransport/ATOM/300' AS ns)

SELECT *

FROM students

WHERE experimentchemical.exist('/ns:ATOM/ns:Source/ns:Identity[ns:Location="SYD"]') = 1