Why are spaces dissapearing in xml?

In PeopleTools 8.52, I have xml I am saving to file.  We are using record PeopleCode and there are lots of special characters in certain fields and those fields are long.  I have found that by using

&xml_string = &XMLDOC.GenFORMATTEDXMLString();

I can get some of those characters encoded.

We are also replacing carriage returns with a space using the following:

&xml_string = Substitute(&xml_string, Char(13) | Char(10), " ");

There is a lot more going on in the code.  So, I am not going to post the entire event.  I am also chunking the field that is long (comments 2000) into groups of 264 characters.  The removed spaces are not happening at the beginning or end of the chunks, so I do not think that has anything to do with it, but I have not quite proven it out.  The issue does appear to be between the XML formatting, the substitue, and the chunking.  As stated above, I really think the issue is with the XML formatting and the