There is a substantial subset among the "expressive power" between
XPath and the language of Rule Based Systems, especially those that
are embedded in an object-oriented environment. "Constraint
programming" would be the common denominator. Thus, an XSLT template
works quite similar to a rule (although rules appear to be easier to
write for data that is organized like a relational DB than that in a
deep hierarchy).

Which might suggest trying a rules language within a template - possibly
building on Kens idea. Template for 'where', rules for constraints,
checking etc.

Thus, rules can express the data analysis side of a transformation
very well. One system I know very well (Drools) also features a
technique for implementing a Domain Specific Language of your design,
with a translator to the native rule language.

Production Rule Systems let you also specify actions, to be executed
for each match on the data, and this would normally be used to define
the synthesis part, but since this is procedural it does not map so
well to the functional approach, especially when you look at the way a
"pull" transformation is designed.

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