> <xsl:apply-templates select="$set[postion()]/*"/>

My first guess would be that you want

<xsl:variable name="p" select="position()"/>
<xsl:apply-templates select="$set[$p]"/>

Note that position() changes inside a predicate, and that [position()] means
[position()=position()] which is obvious nonsense.

But I can't relate that to your next statement of the problem
> 
> I need to apply templates to the child of the current Row 
> element that is in the $set node set. 

What does "that" refer to - the current Row, or the child of the current
Row?
> 
> How do I get the current context using a node set variable?
> 

You don't. You either use the current context or you use a variable. The
value of a variable is independent of the current context - that's one of
the things that makes it useful.

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