> I found IE _is_ preserving the whitespace while with indent="no" the
> whitespace gets striped.

Are you sure that isn't just an artefact of the white space being
_added_ by indentation, rather than white space being preserved.

I rely heavily on leading blanks of to original text. For example, if
you look at the source of
http://free.pages.at/staudinger/Regest/Regesten/A1604-01-00-02017.xml
(which uses http://free.pages.at/staudinger/Regest/view_regest.xsl
for the client-side transformation), you see the element <zitat>
with only text and whitespace as content. The <zitat> is simply
transformed into a <blockquote> but the text is marked up with
various <p> or <pre>, dependent on the indentation (currently number
of leading blanks).

You can in fact turn off the stripping, even in IE via the xsl-stylesheet
PI where you don't have programmatic access to the parser, if you are
prepared to put xml:space="preserve" into the source document (eg on the
document element).