Re: White space treatment issue
Saxon collapses the lines following each<fo:inline>
saxon (nor presumably MvpXslTransform) process the xsl-fo at all, so the important question, if you think ther is a difference between then, is what does the xsl-fo that is generated look like.
If the xsl-fo generated is different then we can look to differences between the XSLT processors, but if it is the same, the difference is in the way the xsl-fo processor is handling its input (with a microsoft xml parser losing white space being a prime suspect).
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