Well I pointed you to the documentation.
You need to use xsl:strip-space as a child of xsl:stylesheet e.g.
Code:
<xsl:stylesheet
xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
version="1.0">
<xsl:strip-space elements="*"/>
</xsl:stylesheet>
--
Martin Honnen
Microsoft MVP - XML