master.xml

<data>
  <workthumbimages>
    <section id="6" handle="work-images">work images</section>
    <entry id="126">
     <description>cartier-bresson</description>
      <image size="114 KB" path="/images" type="image/jpeg">
       <filename>hcb2.jpg</filename>
       <meta creation="2012-03-13T14:37:02+00:00" width="715" height="440" />
     </image>
      <project>
        <item id="8" handle="the-first-project" section-handle="work" section-name="work">the first project</item>
      </project>
    </entry>
    <entry id="29">
      <description>Sparrow Mail for iPhone</description>
     <image size="unknown" path="/images" type="image/png">
        <filename>sparra.png</filename>
       <meta creation="2012-02-18T18:44:29+00:00" width="150" height="150" />
     </image>
      <project>
        <item id="27" handle="will-it-grid" section-handle="work" section-name="work">will it grid?</item>
      </project>
    </entry>
    <entry id="14">
      <description>Reeder app</description>
     <image size="unknown" path="/images" type="image/png">
        <filename>reeder.png</filename>
       <meta creation="2012-02-18T18:57:01+00:00" width="150" height="150" />
     </image>
      <project>
        <item id="13" handle="second-project" section-handle="work" section-name="work">second project</item>
     </project>
    </entry>
    <entry id="12">
      <description>pixels</description>
     <image size="27 KB" path="/images" type="image/png">
       <filename>flight.png</filename>
       <meta creation="2012-03-13T14:33:04+00:00" width="150" height="150" />
     </image>
      <project>
        <item id="8" handle="the-first-project" section-handle="work" section-name="work">the first project</item>
      </project>
    </entry>
    <entry id="11">
      <description>this is the first thumbnail</description>
      <image size="unknown" path="/images" type="image/png">
        <filename>welcome.png</filename>
        <meta creation="2012-02-18T18:42:12+00:00" width="150" height="150" />
     </image>
      <project>
        <item id="8" handle="the-first-project" section-handle="work" section-name="work">the first project</item>
      </project>
    </entry>
  </workthumbimages>
</data>

master.xsl

<xsl:stylesheet xmlns:xsl="http://www.w3.org/1999/XSL/Transform" version="1.0">

  <xsl:output method="xml" indent="yes" />

  <xsl:template match="/">
    <xsl:for-each select="data/workthumbimages/entry">
      <div>
        <xsl:choose>
          <xsl:when test="position() mod 2 = 1">
            <xsl:attribute name="class"><xsl:text>span-4 first grid-image</xsl:text></xsl:attribute>
          </xsl:when>
          <xsl:otherwise>
            <xsl:attribute name="class"><xsl:text>span-4 last grid-image</xsl:text></xsl:attribute>
          </xsl:otherwise>
        </xsl:choose>
        <!-- {$root} omitted for testing -->
        <img src="/image/2/150/150/1/images/{image/filename}" alt="" />
        <a href="project/{project/item/@handle}">
        <div class="thumbteaser">
          <xsl:copy-of select="description/node()"/>
        </div>
        </a>
      </div>
    </xsl:for-each>
  </xsl:template>

</xsl:stylesheet>