> What happens to the context document when you use this in XSLT 1.0?

Technically there's no such thing as the "context document", though it's a
convenient shorthand for "the document containing the context node".

> My suspicions 
> are that the context document changes to the contents of 
> $structured-data when I apply-templates to it

Correct, when you apply-templates to a node that node becomes the context
node.

If you need to refer back to the original document, it's usually best to
have a global variable bound to it.

<xsl:variable name="main-doc" select="/"/>

Michael Kay
http://www.saxonica.com/