Spec question. xml:space

I'm  trying to determine the proper handling of xml:space in the following example fragment:

   <div tts:wrapOption="noWrap" xml:space='preserve'>
      <p xml:space='default' begin="0s" end="10s">
      This text must appear on one line indented.</p>
      <p begin="0s" end="10s">This text
must appear on two lines. Not indented
      </p><p begin="0s" end="10s">
        This text must have a leading blank line
        and appear on two lines, both indented.
      </p>
    </div>

My question is, what if anything should happen to preserved space between the div and first and last p and between the p elements. Inline text is not legal here, so should anonymous <p> elements be inserted, or is the space  ignored?

Section 7.2.3 says what would happen if character flow objects appear in these places. But I'm not clear whether the rest of the spec says that they do. The pruning algorithm in section 4 determines where whitespace is taken out if the elements type is empty; but div does not appear to be an empty type.

Sean Hayes
Media Accessibility Strategist
Accessibility Business Unit
Microsoft

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