How do i remove all linebreaks?

The following transformation:

<xsl:stylesheet version="1.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
<xsl:output method="text"/>

<xsl:template match="*">
  <xsl:apply-templates select="@TEXT | node()"/>
</xsl:template>

<xsl:template match="node/@TEXT | text()">
  <xsl:if test="normalize-space(.)">
    <xsl:value-of select=
     "concat(normalize-space(.), '&#xA;')"/>
  </xsl:if>

  <xsl:apply-templates />
</xsl:template>

</xsl:stylesheet>

when applied against this XML document

<t>
<node TEXT="   txt A   "/>
<node TEXT="       txt X"/>
<node>
    <html>
        <p>        txt Y      </p>
    </html>
</node>
<node TEXT="txt B"/>
</t>

produces the wanted result:

txt A
txt X
txt Y
txt B

Do note the use of the standard XPath function normalize-space(), which strips off all leading and trailing spaces and replaces every sequence of other spaces with just one space.