A short answer: yes, if you want to respect xml:space, you have really
no choice but to keep a stack or suchlike to see if it's been overriden
in a child element. JUMBO, since it's an application, has no obligation
to respect xml:space, it's just a request, after all. If you are
respecting xml:space, whenever you are in an element for which
xml:space='preserve' does not apply, you should do whatever best suits the
needs of your application and its users. I very much doubt there is a
universal answer for all classes of application. I think HTML gets it
pretty much right for display type applications.
As for your question "will it be used?": yes, of course. -Tim