Hi Kent,
  Following is a XSLT 1.0 solution to the problem:

<?xml version="1.0" encoding="UTF-8"?>
<xsl:stylesheet version="1.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform">

<xsl:template match="/play">
 <play>
   <xsl:apply-templates select="scene" />
 </play>
</xsl:template>

<xsl:template match="scene">
 <scene name="{.}">
   <xsl:apply-templates select="following-sibling::character">
     <xsl:with-param name="gen-id" select="generate-id()" />
   </xsl:apply-templates>
 </scene>
</xsl:template>

<xsl:template match="character">
 <xsl:param name="gen-id" />

 <xsl:if test="$gen-id = generate-id(preceding-sibling::scene[1])">
   <character name="{.}">
     <xsl:apply-templates select="following-sibling::line">
       <xsl:with-param name="gen-id" select="generate-id()" />
     </xsl:apply-templates>
   </character>
 </xsl:if>
</xsl:template>

<xsl:template match="line">
 <xsl:param name="gen-id" />

 <xsl:if test="$gen-id = generate-id(preceding-sibling::character[1])">
   <xsl:copy-of select="." />
 </xsl:if>
</xsl:template>

<play>
 <scene>Scene 1</scene>
 <character>char 1</character>
 <line>blah blah blah</line>
 <line>blah blah blah</line>
 <line>blah blah blah</line>
 <character>char 2</character>
 <line>blah blah blah</line>
 <line>blah blah blah</line>
 <line>blah blah blah</line>
 <character>char 3</character>
 <line>blah blah blah</line>
 <line>blah blah blah</line>
 <line>blah blah blah</line>
 <scene>Scene 2</scene>
 <character>char 1</character>
 <line>blah blah blah</line>
 <line>blah blah blah</line>
 <line>blah blah blah</line>
</play>

<?xml version="1.0" encoding="UTF-8"?>
<play>
  <scene name="Scene 1">
     <character name="char 1">
        <line>blah blah blah</line>
        <line>blah blah blah</line>
        <line>blah blah blah</line>
     </character>
     <character name="char 2">
        <line>blah blah blah</line>
        <line>blah blah blah</line>
        <line>blah blah blah</line>
     </character>
     <character name="char 3">
        <line>blah blah blah</line>
        <line>blah blah blah</line>
        <line>blah blah blah</line>
     </character>
  </scene>
  <scene name="Scene 2">
     <character name="char 1">
        <line>blah blah blah</line>
        <line>blah blah blah</line>
        <line>blah blah blah</line>
     </character>
  </scene>
</play>

My apologies. for not making that clear.  The following is my input. I want
to wrap a script from a play in a file "movie1.xml":
>> <play>
>>    <scene>Scene 1</scene>
>>       <character>char 1</character>
>>          <line>blah blah blah</line>
>>          <line>blah blah blah</line>
>>          <line>blah blah blah</line>
>>       <character>char 2</character>
>>          <line>blah blah blah</line>
>>          <line>blah blah blah</line>
>>          <line>blah blah blah</line>
>>       <character>char 3</character>
>>          <line>blah blah blah</line>
>>          <line>blah blah blah</line>
>>          <line>blah blah blah</line>
>>    <scene>Scene 2</scene>...
>>       <character>char 1</character>
>>          <line>blah blah blah</line>
>>          <line>blah blah blah</line>
>>          <line>blah blah blah</line>
>> ...
>> </play>
 The output I want to look like so:
<play>
   <scene name="Scene 1">
      <character name="char 1">
         <line>blah blah blah</line>
         <line>blah blah blah</line>
         <line>blah blah blah</line>
      </character>
      <character name="char 2">
         <line>blah blah blah</line>
         <line>blah blah blah</line>
         <line>blah blah blah</line>
      </character>
      <character name="char 3">
         <line>blah blah blah</line>
         <line>blah blah blah</line>
         <line>blah blah blah</line>
      </character>
   </scene>
   <scene name="Scene 2">
      <character> name="char 1"
         <line>blah blah blah</line>
         <line>blah blah blah</line>
         <line>blah blah blah</line>
      </character>
 ...</scene>
</play>

>> My question: How do I wrap the scenes and characters.  So far
>> my strained brain can only think of creating a text file and
>> using "<scene>" or "<character>" to place the end
>> element then renaming the text file to xml.
>> thanks Kent

--
Regards,
Mukul Gandhi