Re: Muenchian method on nodes with two or more items f

<xsl:for-each select="//LexicalDatabase//index[generate-id(.)=
            generate-id(key('entries-by-index',.))]">
                                               ^

<xsl:variable name="entry"
            select="(ancestor::*[parent::LexicalDatabase])[1]"/>
                               ^

  <xsl:key name="entries-by-index" match="//LexicalDatabase/*"
use=".//index"/>

       ^^^
Bad idea. I think you actually want to group the "index" elements
by their content:

   <xsl:key name="entries-by-index" match="index" use="."/>
   <xsl:template match="/">
     <xsl:for-each select="//LexicalDatabase//index[generate-id(.)=
            generate-id(key('entries-by-index',index))]">
       <xsl:sort select="." order="ascending" />
       <xsl:variable name="entry"
            select="(ancestor[parent::LexicalDatabase])[1]"/>
       <IndexItem value="{.}">
         <xsl:for-each select="key('entries-by-index', .)">
           <entry base="{$entry/base}"/>
         </xsl:for-each>
       </IndexItem>
     </xsl:for-each>
   </xsl:template>