Andrews solution is good, but outputs

<bk>
   <block sect="1">
      <para>Copyright ) OASIS. 20022007. All Rights ....</para>
      <para>All capitalized terms in the following t ....</para>
      <para>This document and translations of it may ....</para>
      <para>The limited permissions granted above ar ....</para>
      <para>This document and the information contai ....</para>
      <para>OASIS requests that any OASIS Party or a ....</para>
      <para>OASIS invites any party to contact the O ....</para>
      <para>OASIS takes no position regarding the va ....</para>
      <para>The names "OASIS", OpenDocument, Open ....</para>
   </block>

I.e. the numbering is out by one since the document
doesn't start with a header.
I'm working on Andrews Solution to see if I can hack round it

<xsl:template match="/">
  <bk>

    <xsl:apply-templates select="$nested/*"/>
  </bk>	
</xsl:template>

Just needed to ignore the first block.
Now working.

<bk>
   <block sect="1">
      <title>Introduction</title>
   </block>
   <block sect="1.1">
      <title>Introduction</title>
      <para>This document defines an XML schema for ....</para>
      <para>The schema provides for high-level infor ....</para>
      <para>Chapter 1 contains the introduction to t ....</para>
      <para>Chapter 8 describes the table content of ....</para>
      <para>The OpenDocument format makes use of a p ....</para>
   </block>
   <block sect="1.2">
      <title>Notation</title>
      <para>Within this specification, the key words ....</para>
   </block>

--
Dave Pawson
XSLT XSL-FO FAQ.
http://www.dpawson.co.uk