XSLT/XPath Question (Grouping Authors by First Charact

I have an XSLT/XPath Question that I've been beating my head against
for a while.

I have a list of authors with a name element and a file-as attribute
(XPATH: /booklist/author/name/@file-as).  I currently build a Table of
Contents sorted by the author/name/@file-as attribute.  That works OK.
I want to add further markup (by putting authors in groups by the
first character of their last name).

I can get the first character of the last name, I've even created a
key that allows me to access the nodes of authors by the first
character in the last name (see the commented out section of the b.xsl
file included below).  However, I can not figure out how to get a list
of distinct characters (from the last names) so that I can iterate
over them and generate my list.

<?xml version="1.0" encoding="UTF-8"?>
<booklist>
  <author>
     <name file-as="Adams, Douglas">Douglas Adams</name>
  </author>
  <author>
     <name file-as="Anderson, Kevin J.">Kevin J. Anderson</name>
  </author>
  <author>
     <name file-as="Anthony, Piers">Piers Anthony</name>
  </author>
  <author>
     <name file-as="Archer, Jeffrey">Jeffrey Archer</name>
  </author>
  <author>
     <name file-as="Baldacci, David">David Baldacci</name>
  </author>
  <author>
     <name file-as="Ball, Margaret">Margaret Ball</name>
  </author>
  <author>
     <name file-as="Bradley, Marion Zimmer">Marion Zimmer Bradley</name>
  </author>
  <author>
     <name file-as="Carcaterra, Lorenzo">Lorenzo Carcaterra</name>
  </author>
  <author>
     <name file-as="Card, Orson Scott">Orson Scott Card</name>
  </author>
  <author>
     <name file-as="Chalker, Jack L.">Jack L. Chalker</name>
  </author>
  <author>
     <name file-as="Dahl, Roald">Roald Dahl</name>
  </author>
  <author>
     <name file-as="Daley, Brian">Brian Daley</name>
  </author>
  <author>
     <name file-as="Dann, Jack">Jack Dann</name>
  </author>
</booklist>

I can extract the authors and generate a table of contents with the
following XSLT: (b.xsl)

<?xml version="1.0"?>
<xsl:stylesheet version="1.0"
               xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
               >
   <xsl:output method="xml"/>
   <xsl:output indent="yes"/>
   <xsl:strip-space elements="*"/>

   <xsl:template match="/booklist">
       <xsl:call-template name="gen-toc"/>
   </xsl:template>

   <!-- Generate Table of Contents -->
   <xsl:template name="gen-toc">
     <div id="toc" class="toc">
<!--
     <h1>Test</h1>
     <ul>
     <xsl:for-each select="key('alet','A')">
       <li><xsl:value-of select="name/@file-as"/></li>
     </xsl:for-each>
     </ul>
-->
     <h1>Table of Contents (by Author)</h1>
     <ul>
     <xsl:for-each select="//author/name">
       <xsl:sort select="@file-as"/>
       <li><a href="#{generate-id(..)}"><xsl:value-of
select="@file-as"/></a></li>
     </xsl:for-each>
     </ul>
     </div>
   </xsl:template>

<?xml version="1.0"?>
<div id="toc" class="toc">
 <h1>Table of Contents (by Author)</h1>
 <ul>
   <li>
     <a href="#id91524">Adams, Douglas</a>
   </li>
   <li>
     <a href="#id91570">Anderson, Kevin J.</a>
   </li>
   <li>
     <a href="#id91578">Anthony, Piers</a>
   </li>
   <li>
     <a href="#id91588">Archer, Jeffrey</a>
   </li>
   <li>
     <a href="#id91597">Baldacci, David</a>
   </li>
   <li>
     <a href="#id91607">Ball, Margaret</a>
   </li>
   <li>
     <a href="#id91617">Bradley, Marion Zimmer</a>
   </li>
   <li>
     <a href="#id91627">Carcaterra, Lorenzo</a>
   </li>
   <li>
     <a href="#id93622">Card, Orson Scott</a>
   </li>
   <li>
     <a href="#id93633">Chalker, Jack L.</a>
   </li>
   <li>
     <a href="#id93643">Dahl, Roald</a>
   </li>
   <li>
     <a href="#id93653">Daley, Brian</a>
   </li>
   <li>
     <a href="#id93663">Dann, Jack</a>
   </li>
 </ul>
</div>

I want to change that so that I have the authors in subsections, with
the first letter of their last names as the the main entry, like so

       A
               //author/name/@file-as[.=='A']
       B
               //author/name/@file-as[.=='B']
       etc..

[This was hand edited, I have not yet figured out how to automatically
generate it.]

<?xml version="1.0"?>
<div id="toc" class="toc">
 <h1>Table of Contents (by Author)</h1>
 <ul>
   <li>
     <a name="A">A</a>
     <ul>
       <li>
         <a href="#id91524">Adams, Douglas</a>
       </li>
       <li>
         <a href="#id91570">Anderson, Kevin J.</a>
       </li>
       <li>
         <a href="#id91578">Anthony, Piers</a>
       </li>
       <li>
         <a href="#id91588">Archer, Jeffrey</a>
       </li>
       <li>
         <a href="#id91597">Baldacci, David</a>
       </li>
     </ul>
   </li>
   <li>
     <a name="B">B</a>
     <ul>
       <li>
         <a href="#id91607">Ball, Margaret</a>
       </li>
       <li>
         <a href="#id91617">Bradley, Marion Zimmer</a>
       </li>
     </ul>
   </li>
   <li>
     <a name="C">C</a>
     <ul>
       <li>
         <a href="#id91627">Carcaterra, Lorenzo</a>
       </li>
       <li>
         <a href="#id93622">Card, Orson Scott</a>
       </li>
       <li>
         <a href="#id93633">Chalker, Jack L.</a>
       </li>
     </ul>
   </li>
   <li>
     <a name="D">D</a>
     <ul>
       <li>
         <a href="#id93643">Dahl, Roald</a>
       </li>
       <li>
         <a href="#id93653">Daley, Brian</a>
       </li>
       <li>
         <a href="#id93663">Dann, Jack</a>
       </li>
     </ul>
   </li>
 </ul>
</div>

I've tried some XPath 2 stuff and XQuery.  I can get a list of first
letters using XQuery (and thus XPath 2)

for $a in //author/name/substring(@file-as,1,1)
return
<c>{$a}</c>

I tried embedding something like the above "for $a in.." into an XSLT
2.0 stylesheet, and assign it to a variable, but I get an error from
saxon when I tried it.

Something like this is desired.... (with UNIQUE-SET-OF-FIRST-LETTERS)
replaced with something that works.  I set this to XSLT 2, and tried
"$letters//l" in place of that place-holder text
(UNIQUE-SET-OF-FIRST-LETTERS).  It generated the Letter items A B C
.., but all of the sub <ul>s where empty.

<?xml version="1.0"?>
<xsl:stylesheet xmlns:xsl="http://www.w3.org/1999/XSL/Transform" version="1.0">
 <xsl:output method="xml"/>
 <xsl:output indent="yes"/>
 <xsl:strip-space elements="*"/>

<!--
 <xsl:variable name="letters">
   <l>A</l>
   <l>B</l>
   <l>C</l>
   <l>D</l>
   <l>E</l>
 </xsl:variable>
-->
 <xsl:template match="/booklist">
   <xsl:call-template name="gen-toc"/>
 </xsl:template>

 <!-- Generate Table of Contents -->
 <xsl:template name="gen-toc">
   <div id="toc" class="toc">
     <h1>Table of Contents (by Author)</h1>
     <ul>
       <xsl:for-each select="UNIQUE-SET-OF-FIRST-LETTERS">
         <xsl:variable name="lc" select="."/>
         <li>
           <a>
             <xsl:attribute name="name" select="$lc"/>
             <xsl:value-of select="$lc"/>
           </a>
           <ul>
             <xsl:for-each select="key('alet',$lc)">
               <xsl:sort select="name/@file-as"/>
               <li>
                 <a href="#{generate-id(.)}">
                   <xsl:value-of select="name/@file-as"/>
                 </a>
               </li>
             </xsl:for-each>
           </ul>
         </li>
       </xsl:for-each>
     </ul>
   </div>
 </xsl:template>
</xsl:stylesheet>