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This was formerly RQ-127. We request that a health warning be added at the most appropriate place in the XML Schema spec, to warn schema users against specifying whiteSpace="replace" or "collapse" on elements (and even attributes) meant to contain anything but highly constrained text such as lists, as it will not do what they think ("unexpected"!) and will in fact prevent later processing steps from doing the Right Thing. See (member-only link) http://lists.w3.org/Archives/Member/w3c-i18n-wg/2001Oct/0032.html
Erratum text http://lists.w3.org/Archives/Member/w3c-xml-schema-ig/2003Apr/0269.html reviewed and approved at the May 2 telecon. To be incorporated into post 2E errata doc.