<xsl:stylesheet version="1.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform">

<xsl:template match="/list">
		<xsl:element name="dl">
			<xsl:call-template name="processitem" />
		</xsl:element>
</xsl:template>

<!-- Improbably naive algo -->
<!-- we use symantic <dl><dt><dd> tags as defined on http://www.w3.org/TR/xhtml2/mod-list.html -->
<xsl:template name="processitem">
	<xsl:for-each select="item">
		<xsl:variable name="tagname" select="substring(.,1,1)" />
		<xsl:if test="not(starts-with(preceding-sibling::*/text(),$tagname))"> 
			<xsl:element name="dt">
				<xsl:value-of select="$tagname" />
			</xsl:element>
			<xsl:for-each select="/list/item/text()">
				<xsl:if test="starts-with(.,$tagname)">
					<xsl:element name="dd">
						<xsl:value-of select="." />
					</xsl:element>
				</xsl:if>
			</xsl:for-each>	
		</xsl:if>
	</xsl:for-each>
</xsl:template>
</xsl:stylesheet>