Re: mixed content grouping by whitespace

      <xsl:for-each-group select="$sep/node()"
        group-adjacent="boolean(self::tei:seg[@type='sep'])">

This groups the nodes in the variable you've created by the boolean
(so the truth or falsehood of whether the pattern matches? I didn't
know you could do that in a group-* pattern) of the existence of the
segs you've created on tei:seg/text() which mark the whitespace.

[1] http://www.w3.org/TR/xslt20/#err-XTTE1100
[2] http://www.w3.org/TR/xpath-functions/#func-boolean
[3] http://www.w3.org/TR/xslt20/#d5e21264

        <xsl:choose>
          <xsl:when test="current-grouping-key()">
            <xsl:value-of select="current-group()" />
          </xsl:when>

When it is one of those whitespace segs, then just put out the value
of the whitespace, temporary element vanishes.

          <xsl:otherwise>
            <w xmlns="http://www.tei-c.org/ns/1.0">
              <xsl:apply-templates select="current-group()"/>
            </w>
          </xsl:otherwise>

Otherwise, wrap it in a word element.