2.2.3 [W3C-XSLT] Section 3.4, Whitespace Stripping
Thus, the applicable match for a particular element name is determined as follows: -First, any match with lower import precedence than another match is ignored. -Next, any match with a NameTest that has a lower default priority than the default priority of the NameTest of another match is ignored. It is an error if this leaves more than one match. An XSLT processor may signal the error; if it does not signal the error, it must recover by choosing, from amongst the matches that are left, the one that occurs last in the stylesheet.
MSXML3 and MSXML6
No error is signaled for stripped white space. Instead, the last match in the style sheet is chosen.