Example to split items into sets of 5 using last() and position():

<items><item>1</item><item>2</item>. . .<item>23</item></items>

<xsl:template match="items">
 <hierarchy>
  <xsl:for-each select="item[position() mod 5 = 1]">
   <xsl:choose>
    <xsl:when test="4 > count(following-sibling::item) ">
     <subset>
      <xsl:copy-of select="."/>
      <xsl:copy-of select="following-sibling::item [5 > position()]"/>
     </subset>
    </xsl:when>
    <xsl:otherwise>
     <set>
      <xsl:copy-of select="."/>
      <xsl:copy-of select="following-sibling::item [5 > position()]"/>
     </set>
    </xsl:otherwise>
   </xsl:choose>
  </xsl:for-each>
 </hierarchy>
</xsl:template>