In this case, yes, the element and attribute names in the XML source will always be the same.
In such case, you could simplify to:
<xsl:stylesheet version="1.0"
xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
<xsl:output method="xml" version="1.0" encoding="UTF-8" indent="yes"/>
<xsl:template match="/">
<pbcoreCollection xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance">
<pbcoreDescriptionDocument>
<pbcoreInstantiation>
<xsl:call-template name="tokenize">
<xsl:with-param name="text" select="pbcoreCollection/pbcoreDescriptionDocument/pbcoreInstantiation/instantiationAnnotation"/>
</xsl:call-template>
</pbcoreInstantiation>
</pbcoreDescriptionDocument>
</pbcoreCollection>
</xsl:template>
<xsl:template name="tokenize">
<xsl:param name="text"/>
<xsl:param name="sep" select="', '"/>
<xsl:choose>
<xsl:when test="contains($text, $sep)">
<instantiationAnnotation annotationType="CMS tag">
<xsl:value-of select="substring-before($text, $sep)"/>
</instantiationAnnotation>
<!-- recursive call -->
<xsl:call-template name="tokenize">
<xsl:with-param name="text" select="substring-after($text, $sep)" />
</xsl:call-template>
</xsl:when>
<xsl:otherwise>
<instantiationAnnotation annotationType="CMS tag">
<xsl:value-of select="$text"/>
</instantiationAnnotation>
</xsl:otherwise>
</xsl:choose>
</xsl:template>
</xsl:stylesheet>
Note: this may need a bit more work if your input really carries a trailing ", " separator as shown in your example.