Below illustrates how one could address your
requirement.  A quick review of the result looks like it is what you want.

And my quick review was wrong, as I missed the
elements ... when hacking your original I left in a line I shouldn't have.

You might find the one below more useful, as this
one actually constitutes the elements.

T:\ftemp>type maestro.xml
<?xml version="1.0" encoding="UTF-8"?>
<buckets siteid="mysiteid" version="1.0">
  <bucket priority="4" bucketid="12348" title="Sports"
displaytitle="Sports" link="/sections/sports/" target="_blank"
display="1">
    <nav>
      <item priority="1" title="Baseball" displaytitle="Baseball"
link="/sections/sports/baseball/" description="Baseball 411"
display="1"/>
      <item priority="2" title="Football" displaytitle="Football"
link="/sections/sports/football/" description="" display="1"/>
    </nav>
    <contentInclude priority="1" max="3" display="1">
      <item catid="2345" catname="Sports" prefix="" display="1"/>
    </contentInclude>
    <contentInclude type="daytime" priority="2" max="2" display="1">
      <item catname="sports" display="1"/>
    </contentInclude>
    <contentInclude type="blog" priority="3" max="2" display="1">
      <item catname="coolblog" prefix="Cool: " display="1"/>
      <item catname="soundblog" prefix="Sounds: " display="1"/>
    </contentInclude>
    <bucketBottomLink title="More Sports &#187;"
link="/sections/entertainment/" display="1"/>
  </bucket>
  <bucket priority="3" bucketid="12347" title="Promotions"
displaytitle="" description="This is the Promotions bucket" link=""
display="1" tags="promos,promotions,nonpublic">
    <contentInclude priority="1" display="1">
      <item catid="5678" catname="Promos" prefix="" display="1"/>
    </contentInclude>
  </bucket>
  <bucketLists>
    <bucketList priority="4" bucketListid="4" location="homepage"
title="Entertainment List" displaytitle="Entertainment Junkie"
display="1" tags="entertainment,fun">
      <bucketListItem priority="1" bucketid="34572"
title="Entertainment" display="1"/>
      <bucketListItem priority="5" bucketid="34576" type="blog"
title="artsblog" items="7" display="1"/>
    </bucketList>
    <bucketList priority="5" bucketListid="5" location="homepage"
title="Nerd" displaytitle="Nerd's List of Lists" display="1"
tags="tech,technology,gadgets,nerd,geek">
      <bucketListItem priority="1" bucketid="34577" title="Science
&amp; Technology" display="1"/>
      <bucketListItem priority="4" bucketid="34582" type="blog"
title="nerdblog" items="7" display="1"/>
    </bucketList>
  </bucketLists>
</buckets>

T:\ftemp>call xslt maestro.xml maestro.xsl
<?xml version="1.0" encoding="utf-8"?>
<buckets siteid="mysiteid" version="1.0">
   <bucket priority="4" bucketid="12348"
link="/sections/sports/" target="_blank" display="1">
      <title>Sports</title>
      <displaytitle>Sports</displaytitle>
      <nav>
         <item priority="1" link="/sections/sports/baseball/" display="1">
            <title>Baseball</title>
            <displaytitle>Baseball</displaytitle>
            <description>Baseball 411</description>
         </item>
         <item priority="2" link="/sections/sports/football/" display="1">
            <title>Football</title>
            <displaytitle>Football</displaytitle>
            <description/>
         </item>
      </nav>
      <contentInclude priority="1" max="3" display="1">
         <item catid="2345" display="1">
            <catname>Sports</catname>
            <prefix/>
         </item>
      </contentInclude>
      <contentInclude type="daytime" priority="2" max="2" display="1">
         <item display="1">
            <catname>sports</catname>
         </item>
      </contentInclude>
      <contentInclude type="blog" priority="3" max="2" display="1">
         <item display="1">
            <catname>coolblog</catname>
            <prefix>Cool: </prefix>
         </item>
         <item display="1">
            <catname>soundblog</catname>
            <prefix>Sounds: </prefix>
         </item>
      </contentInclude>
      <bucketBottomLink link="/sections/entertainment/" display="1">
         <title>More Sports B;</title>
      </bucketBottomLink>
   </bucket>
   <bucket priority="3" bucketid="12347" link=""
display="1" tags="promos,promotions,nonpublic">
      <title>Promotions</title>
      <displaytitle/>
      <description>This is the Promotions bucket</description>
      <contentInclude priority="1" display="1">
         <item catid="5678" display="1">
            <catname>Promos</catname>
            <prefix/>
         </item>
      </contentInclude>
   </bucket>
   <bucketLists>
      <bucketList priority="4" bucketListid="4"
location="homepage" display="1" tags="entertainment,fun">
         <title>Entertainment List</title>
         <displaytitle>Entertainment Junkie</displaytitle>
         <bucketListItem priority="1" bucketid="34572" display="1">
            <title>Entertainment</title>
         </bucketListItem>
         <bucketListItem priority="5"
bucketid="34576" type="blog" items="7" display="1">
            <title>artsblog</title>
         </bucketListItem>
      </bucketList>
      <bucketList priority="5" bucketListid="5"
location="homepage" display="1" tags="tech,technology,gadgets,nerd,geek">
         <title>Nerd</title>
         <displaytitle>Nerd's List of Lists</displaytitle>
         <bucketListItem priority="1" bucketid="34577" display="1">
            <title>Science &amp; Technology</title>
         </bucketListItem>
         <bucketListItem priority="4"
bucketid="34582" type="blog" items="7" display="1">
            <title>nerdblog</title>
         </bucketListItem>
      </bucketList>
   </bucketLists>
</buckets>
T:\ftemp>type maestro.xsl
<!-- AttrToElement.xsl: Turn all attributes into subelements -->
<xsl:stylesheet xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
version="1.0">
<xsl:strip-space elements="*"/>
<xsl:output indent="yes"/>

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

<!--handle attributes at the time they are being preserved-->
<!--ignore these-->
<xsl:template mode="preserve"
              match="@title|@displaytitle|@description|
                     @catname|@prefix|@text"/>
<!--preserve these-->
<xsl:template mode="preserve" match="@*">
  <xsl:copy/>
</xsl:template>

<!--handle attributes at the time they are being converted-->
<!--convert these-->
<xsl:template match="@title|@displaytitle|@description|
                     @catname|@prefix|@text">
  <xsl:element name="{name()}">
    <xsl:value-of select="."/>
  </xsl:element>
</xsl:template>
<!--ignore these-->
<xsl:template match="@*"/>

--
XSLT/XSL-FO/XQuery hands-on training - Los Angeles, USA 2009-06-08
Crane Softwrights Ltd.          http://www.CraneSoftwrights.com/s/
Training tools: Comprehensive interactive XSLT/XPath 1.0/2.0 video
Video lesson:    http://www.youtube.com/watch?v=PrNjJCh7Ppg&fmt=18
Video overview:  http://www.youtube.com/watch?v=VTiodiij6gE&fmt=18
G. Ken Holman                 mailto:gkholman@xxxxxxxxxxxxxxxxxxxx
Male Cancer Awareness Nov'07  http://www.CraneSoftwrights.com/s/bc
Legal business disclaimers:  http://www.CraneSoftwrights.com/legal