Your template seems to bear little resemblance to your stated desired output. You're leaving out a lot of explanation, aren't you?

If what you want is an option list control based on the example XML, then this will do it. Please explain what is missing.
========================

<?xml version="1.0"?>
<xsl:stylesheet version="1.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
  <xsl:strip-space elements="*" />
  <xsl:output method="xml" indent="yes" encoding="UTF-8" />

    <xsl:template match="/">
        <xsl:apply-templates />
    </xsl:template>
    
	<xsl:template match="activity">
	   <OPTGROUP>
                      <xsl:apply-templates />
	   </OPTGROUP>
	</xsl:template>
	
	<xsl:template match="option">
	  <OPTION><xsl:value-of select="."/></OPTION>
	</xsl:template>

</xsl:stylesheet>
-- 
Charles Knell
cknell@xxxxxxxxxx - email



-----Original Message-----
From:     Steve <subsume@xxxxxxxxx>
Sent:     Thu, 23 Aug 2007 16:05:07 -0400
To:       xsl-list@xxxxxxxxxxxxxxxxxxxxxx
Subject:   template matching problem # 18,012

Hello there,

I created a template to auto-generate html select dropdown boxes based
on some nodes. I can't get it to work precisely how I want it to.

Ideally, I'd like to:

<xsl:apply-templates mode="select"
select="document('XML.xml')/activity/option" />

and have each option become an <option> in my select dropdown.
However, as it is, instead of getting a dropdown box with 3 options
(A, B, C below) I get 3 dropdownboxes.

on the mode="select" template I tried to match both "*", "node()",
".", but these are off.

Have I explained myself well enough?

Thanks,

-Steve

XML== Activities/XML.xml

<activity>
   <option>A</option>
   <option>B</option>
   <option>C</option>
</activity>
XSL=== 
       <xsl:template match="/">
		<xsl:apply-templates mode="select"
select="document('../../Activities/XML.xml')/activity/option">
			<xsl:with-param name="id" select="'program'" />
		</xsl:apply-templates>
       </xsl:template>
	<xsl:template mode="select" match="?????????">
		<xsl:param name="selected" />
		<xsl:param name="id" />
		<xsl:param name="other" />
		<xsl:param name="required" />
		<xsl:param name="otherText">Other</xsl:param>
		<xsl:choose>
			<xsl:when test="$id=''">
				ERROR: No id given
			</xsl:when>
			<xsl:otherwise>
				<select id="{$id}" name="{$id}">
					<xsl:if test="$required='required'">
						<xsl:attribute name="required">required</xsl:attribute>
					</xsl:if>
					<xsl:attribute name="onChange">
						if(this.value=='i_Other'){
							new Insertion.Before(this,"<input type='text'
id='<xsl:value-of select="$id" />' name='<xsl:value-of select="$id"
/>' />");Element.remove(this);
						}
					</xsl:attribute>
					<option>Select one</option>
					<xsl:for-each select="../node()">
						<option>
							<xsl:if test=".=$selected">
								<xsl:attribute name="selected">selected</xsl:attribute>
							</xsl:if>
							<xsl:attribute name="value">
								<xsl:choose>
									<xsl:when test="@key"><xsl:value-of select="@key" /></xsl:when>
									<xsl:otherwise><xsl:value-of select="." /></xsl:otherwise>
								</xsl:choose>
							</xsl:attribute>
							<xsl:value-of select="." />
						</option>
					</xsl:for-each>
					<xsl:if test="$other!=''">
						<option value="i_Other"><xsl:value-of select="$otherText" /></option>
					</xsl:if>
				</select>
			</xsl:otherwise>
		</xsl:choose>
	</xsl:template>