The group-wrap should be performed for sequences of <points> of @type =
'1'. <Points> of other types and completeley other nodes should not be
grouped.

Another approach not using grouping with for-each-group is trying to key
on the generated id of the first node in the group; usually that leads
to patterns that make my head spin but so did your original code:

<?xml version="1.0" encoding="UTF-8"?>
<xsl:stylesheet xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
	xmlns:xs="http://www.w3.org/2001/XMLSchema"
	exclude-result-prefixes="#all"
	version="3.0">

  <xsl:key name="point-group"
           match="point[@type = 1 and
preceding-sibling::*[1][self::point[@type = 1]]]"
           use="generate-id(preceding-sibling::point[@type =
1][not(preceding-sibling::*[1][self::point[@type = 1]])][1])"/>

  <xsl:template match="point[@type =
1][not(preceding-sibling::*[1][self::point[@type = 1]])]">
      <group>
          <xsl:copy-of select="., key('point-group', generate-id())"/>
      </group>
  </xsl:template>

  <xsl:template match="point[@type = 1 and
preceding-sibling::*[1][self::point[@type = 1]]]"/>