Create node set and pass as a parameter

Using XSLT 1.0, I'm trying to essentially create a small node set and then pass it as a parameter to a template, something like the following:

<xsl:call-template name="widget">
  <xsl:with-param name="flags">
    <items>
      <item>widget.recent-posts.trim-length=100</item>
      <item>widget.recent-posts.how-many=3</item>
      <item>widget.recent-posts.show-excerpt</item>
    </items>
  </xsl:with-param>
</xsl:call-template>

The idea is that then from within the widget template I could write something like:

<xsl:value-of select="$flags/item[1]" />

Obviously I get compile errors.. how can I achieve this sort of thing?