Set variable via contents of <variable> element

As I understand it, I can set the value of a variable in two ways:
1. By the "select" attribute of the <variable> element:
<xsl:variable name="myvariable" select="'myvalue'"/>

2. By the contents of the <variable> element:
<xsl:variable name="myvariable">
  My value
</xsl:variable>

I can set the value of a new variable to the value of an existing variable
by the first method, and it works fine as in this example:
   <xsl:template match="item">
      <xsl:variable name="this" select="."/>
      <xsl:variable name="usethis" select="$this"/>

I can now use the variable $usethis to access elements of the current node
set, including ancestors of the current node, so the following works:
  <grandparentid><xsl:value-of select="$usethis/../../id"/></grandparentid>
Presumably in this case $usethis" must be a pointer or reference to the
current node in the input document (as opposed to a copy of the current
node) so I can navigate away from it through the input document to access
ancestors etc. (sorry if I'm not using the correct terms to describe what I
mean).

But how do I set the variable using the second method? I can't get it to
work in the same way. It would seem that I have to use copy-of or value-of
in the body of the <variable> element, but this doesn't achieve the same
effect.

The reason I need to do this is because I want to set the variable 'usethis'
to the result of a <choose> element which (as far as I know) I cannot
include in a "select" attribute. Also in my real example 'this' is a
parameter.

Thanks - Rowan