[xsl] Using one nodeset to dictate the format of data from

I have two nodesets in a single XML document. I am trying to output
the data from the first nodeset in a format derived from the contents
of the second nodeset. The problem is that the second nodeset is
nested elements with the same name. This means I need a recursive
template call to make the output nest properly. This results in extra
calls to the template. I know what's wrong with my current approach,
but I can't figure out how to fix it. Does anyone know how to solve
this problems?

I would also like to be able to set the header levels within my
content based on the depth of the content element. Is it possible to
"feed" a template data from the template that called it?

I am using XSL 2.0, Saxon 8B, XML 1.0

XML:
<source-data>
   <content id="id1">content-1</content>
 <content id="id2">content-2</content>
</source-data>

<structure-data>
 <topic-ref idref="id1" >
    <topic-ref idref="id2" >
 </topic-ref>
</structure-data>

DESIRED OUTPUT:
<html>
  <div>content-1
    <div>content-2</div>
 </div>
</html>

ACTUAL OUTPUT:
<html>
  <div>content-1
    <div>content-2</div>
 </div>
 <div>content-2</div>
</html>


XSL:
 <xsl:key name="id" match="concept" use="@id" />
 <xsl:key name="idref" match="*" use="@idref" />

 <xsl:template match="topic-ref">
   <xsl:choose>

<xsl:when test="boolean(./*)">

       <div class="TOPIC-REF">
<!-- Select the source node which corresponds to the idref in the
structure node -->
         <xsl:apply-templates select="key('id', ./@idref)"/>
         <xsl:for-each select="./topic-ref">
           <xsl:apply-templates select="topic-ref"/>
         </xsl:for-each>
         <xsl:apply-templates  select="topic-ref"/>
       </div>
     </xsl:when>
     <xsl:when test="not(./*) and name(../.)='content'">
       <xsl:apply-templates select="key('id', ./@idref)"/>
     </xsl:when>
   </xsl:choose>
 </xsl:template>

I have been banging my head against the wall all day and I am hoping
there is an elegant way to do this that I just didn't manage to figure
out.

Thank you,
Rebecca

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[xsl] Using one nodeset to dictate the format of data from another nodeset