Consider the set $S = \{A, \varnothing\}$ and define $A = \{x \in S|x \not\in x\}$; this is the same as Russell's paradox except with bounded comprehension, ie $A\in A\iff A\not\in A$.
I think the problem lies in the fact that the composition of $S$ depends on $A$, but the composition of $A$ depends on $S$. My question is: what about the Axiom of Separation (or the other axioms) precludes this construction?
NB: I haven't studied set theory except for reading a little bit in some introductory books in my own time.
Your definition is circular. You define $S$ using $A$, and you define $A$ using $S$.
And that's what precludes the definition in this case.