I can only repeat, that with indent="no" you should still have all the
white space used in the source for indentation copied to the result by
default. If it isn't being copied, then either your stylesheet is
removing it, or you are seeing the non-conforming behaviour of
msxml's parser.

Your subject line is "preserve". Note that indent="yes" does not
_preserve_ anything, it will add white space according to its own rules
depending on the structure of the result tree, it will not preserve (or
be influenced by in any way) anything in the original input document.

David