> I don't think you should be mixing "node()" and "*" like that...

:) nope.... sorry about that, I should've changed it after cutting and
pasting from the example (or got it right in the first place).

The proper [insert name here] should use node(), and possibly
apply-templates to attributes and contain an attribute template to
allow overriding:

<xsl:template match="node()">
       <xsl:copy>
               <xsl:apply-templates select="@*|node()[1]"/>
       </xsl:copy>
       <xsl:apply-templates select="following-sibling::node()[1]"/>
</xsl:template>

<xsl:template match="@*">
       <xsl:copy-of select="."/>
</xsl:template>

Maybe the extra template isn't needed and could be incorporated into
the main template?

I don't know of the top of my head what node()[1] would do if the
currrent node was an attribute...