Try group-adjacent using a grouping key of

group-adjacent="if (. instance of element()) then name(.) else
name(following-sibling::*[1])"

This groups text nodes with the following element, which may not be what you
want. If you only want to retain text nodes if they fall between to element
nodes that are in the same group, you could try to expand the conditional
above.

<xsl:template match="entry">
  <xsl:copy>
    <xsl:for-each-group select="node()"
      group-adjacent="if (. instance of element()) then name(.) else
      name(preceding-sibling::*[1])">
      <xsl:element name="{name(current-group()[1])}">
        <xsl:apply-templates select="current-group()/text()"/>
      </xsl:element>
    </xsl:for-each-group>
  </xsl:copy>
</xsl:template>

<xsl:template match="@*|node()">
  <xsl:copy>
    <xsl:apply-templates select="@*|node()"/>
  </xsl:copy>
</xsl:template>