>
> Is there an extension that given a directory will return a
> list of file paths from recursively traversing the directory,

All extensions are processor-dependent.

 eg:
>
> index.html
> images/logo.gif
>
> ...or will I need to write my own extension?
>

You may be able to call the underlying system methods directly:

xmlns:File="java:java.io.File"
<xsl:variable name="dir" select="File:new($directory)"/>
<xsl:variable name="files" select="File:list($dir)"/>
<xsl:for-each select="$files">...

Thanks, sounds promising but I'm having an early problem: any idea why
$files would be empty:

<xsl:variable name="dir" select="File:new($directory)"/>
<xsl:variable name="files" select="File:list($dir)" as="xs:string+"/>