Is it possible to have two {...} expressions in one?

No. The string inside the braces must be an XPath expression,
and there are no braces allowed inside XPath expressions.

href="mailto:{//person[@initials='{@initials}']/@email}"><xsl:value-of
select="@initials" /></a>

(NOTE: in person[@initials='{@initials}'] the two 'initials' attributes
are different; the first is the initials attribute of a 'person' element
and the second and third ones are the initials attributes of the context
node.)

Try
  href="mailto:{//person[@initials=current()/@initials]/@email}">