that change works perfectly -- thank you!

Just to make sure I understand it: could someone briefly explain the
semantic difference between the two formulations?

where that would be a set operation on the current-group() and the
elements selected by foo which is short for child::foo which would be
evaluated with the context node of the xsl:for-each-group; your context
node doesn't have foo children, or at least you are not looking to
exclude them, rather, from the current group, you want to exclude those
that are not foo elements so that became

I think XPath 4 is going to change the semantics of the except operator,
I would need to look up whether your attempted use of except would work
as you intended with the new semantics.