As far as I know you cannot use an XPath expression to do what you want to do.
Here is how I get the result you are looking for
<?xml version="1.0"?>
<xsl:stylesheet version="1.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
<xsl:output method="xml" indent="yes" />
<xsl:template match="/" >
<xsl:element name="PO">
<xsl:copy-of select="//ITEM[ID='1000']" />
</xsl:element>
</xsl:template>
</xsl:stylesheet>