There are many instances in XML where whitespace is important to be kept as is. That's why XML has a built in facility 
for that - the xml:space attribute. When set as xml:space="preserve", it denotes that the whitespace in this node and 
its descendants should be parsed as is.

The "Source > Format" option in NetBeans does't respect that when doing formatting, which can cause 
various "anomalies" if the user doesn't manually put the XML back in order.

To illustrate where this creates problems, consider for example an XSLT document with this in it:
=====
<xsl:attribute name="x" xml:space="preserve"><xsl:value-of select="$a"/>/<xsl:value-of select="$b" /></xsl:attribute>
=====
And suppose that $a is 1, while $b is 2. The result of this would be
=====
x="1/2"
=====
However, after source formatting, the XSLT is
=====
<xsl:attribute name="x" xml:space="preserve">
    <xsl:value-of select="$a"/>/
    <xsl:value-of select="$b" />
</xsl:attribute>
=====
And the result becomes
=====
x="
    1/
    2
"
=====
because the XSLT processor respects whitespace in the xsl:attribute element (with or without xml:space btw).

If NetBeans respects xml:space, developers could use it to mark areas they don't want formatted exactly because they 
know formatting would create such kind of issues.

I'm using NetBeans v6.7.1 with all plug-ins updated to the latest on Windows Vista x64 SP2 with all required updates 
installed and JDK6u15, though I suppose this info is irrelevant for this issue.