Can't you just replace

    <xsl:otherwise>
    <token>  <xsl:value-of select="$string" /></token>
    </xsl:otherwise>

by
    <xsl:when test="contains($string,'yyyyyy')">
      <token><xsl:value-of select="substring-before($string, 'yyyyyy')"/></token>
      <token>yyyyyy</token>
      <token><xsl:value-of select="substring-after($string, 'yyyyyy')"/> </token>
    </xsl:when>

    <xsl:when test="contains($string,'xxxxx')">
      <token><xsl:value-of select="substring-before($string, 'xxxxx')"/></token>
      <token>xxxxx</token>
      <token><xsl:value-of select="substring-after($string, 'xxxxx')"/> </token>
    </xsl:when>

    <xsl:otherwise>
    <token>  <xsl:value-of select="$string" /></token>
    </xsl:otherwise>

of if there is a possibility of more than one nested xxxx have the same
but calling a named template similar to your existing one that splits on
any nested xxxxs.

David

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