Your desired output is not well-formed XML: it contains a namespace prefix "tiles" that has not been declared. XSLT never creates ill-formed XML, if you really want this you will need a different tool.
Why have you declared the output method as HTML when you are not generating HTML?
Michael Kay
http://www.saxonica.com/
Author, XSLT Programmer's Reference and XPath 2.0 Programmer's Reference