> Below is what I have so far, but don't know how to get position or
> counter to function on $x.

Please use other lists (such as querytalk) for xquery, I'll ignire the
xquery parts and answer your xpath question 9which is on topic for this
list)

count(ancestor::*)+1 will return the depth that you ask for in the
subject line, starting from the current node. (It fails in your xquery
as you have not got a current node, I think you intend to count fromm $x
which whould be count($x/ancestor::*)+1 but since $x is iterating
through an explict xpath of fixed depth you know the number in advance


Also 
ex:location="/home/sj/data/file1"
is a syntax error you want
ex:location="/home/sj/data/file1"


David