Is Microsoft XML Parser following W3C guidelines?

I've noticed a few things using Micrsoft XML parser (V6.0) with Visual Basic.
The class is called MSXML2.DOMDocument40

1) Spaces are not counted as characters. So <Element> </Element> is considered to be 0 chars.
2) Newlines in the form of /r/n is considered two characters.

Is this following W3C standards for XML?

I'm also using XML Spy, a non-Microsoft application where:
1) Spaces are counted as characters. So <Element> </Element> is 3 chars long.
2) All newlines are counted as 1 charcter. /r/n is condiered 1 character.

This is running me into trouble because XML files sent from a third party might be valid according to them, but not according to Microsoft's XML parser I'm using in Visual basic.

Has anyone run into this problem? Are there settings in the MS XML parser Class that I can set?