For those of you who might need some kind of help regarding this issue in the future, here is the solution we managed to figure out:

UPDATE tbl1

SETaccountNumber = '3' + accountNumber,

AttributeList.modify('replace value of (/AttributeList/CustodianRawData/dbo.tblAcct/Account_number_1/text())[1] with concat("3", string((/AttributeList/CustodianRawData/dbo.tblAccount_Registration_Data_Detail/Account_number_1)[1]))')

WHEREsomelogic

ANDsomemorelogic

It was a matter of including a full path and a syntax correction in the concatenation.