<xsl:stylesheet version="2.0" 
                         ^^^

it's best to say explictly if you want a 2.0 solution 9which makes this
a lot easier)

  <xsl:variable name="here"  select="."/>
<xsl:template match="/resultset">
  <xsl:for-each select="65 to 90">
   <xsl:variable name="letter" select="code-points-to-string(.)"/>
   <p><xsl:value-of select="$letter"/></p>
   <xsl:if test="matches($here/termname, concat('^',$letter))"> <
         !-- case insens match at start of string -->
  ....

David