You can use saxon:tokenize extension function; if you're using another XSLT processor, you can write simple template "replace" which replaces occurences of string1 with string2 in some string. I your processor isn't Saxon and you have problems with writing that template, let me know.
Code:
<?xml version="1.0" encoding="UTF-8"?>
<xsl:stylesheet version="1.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
xmlns:saxon="http://icl.com/saxon"
exclude-result-prefixes="saxon"
extension-element-prefixes="saxon">
<xsl:template match="ATTRIBUTE">
<xsl:copy>
<xsl:for-each select="saxon:tokenize(concat(' ', substring-before(substring-after(., 'C:'), '"'), ' '), '\\')">
<xsl:value-of select="normalize-space(.)"/>
<xsl:if test="position() != last()">
<xsl:text>\</xsl:text>
</xsl:if>
</xsl:for-each>
</xsl:copy>
</xsl:template>
</xsl:stylesheet>
Regards,
Armen