Re: Detect in the input file
technically you can't distinguish an " " from the character it represents. So assuming you don't search literally for '&'+'n'+'b'+'s'+'p'+';', you could try something like this:
<if test="contains (., '   ')"> do something </if>
and both describe the same Unicode codepoint, the 0xA0 non-breaking space.
Replacing can be done recursively. See <http://www.dpawson.co.uk/xsl/sect2/replace.html> for examples.
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