XSLT indent not working with MSXML

I am trying to "pretty" an XML file. As suggested in some other SO questions, I am using the following stylesheet to transform:

<xsl:stylesheet version="1.0" xmlns:xsl="http://ift.tt/tCZ8VR">
<xsl:output indent="yes" method="xml" encoding="UTF-16" />
<xsl:strip-space elements="*"/>
<xsl:template match="node() | @*">
    <xsl:copy>
      <xsl:apply-templates select="node() | @*" />
    </xsl:copy>
  </xsl:template>
</xsl:stylesheet>

However this is not producing the desired results. For an input file of:

 <A><B><C /></B></A>

the generated output is:

<?xml version="1.0" encoding="UTF-16"?>
<A>
<B>
<C>
</C>
</B>
</A>

But the output I am expecting is (header line doesn't matter):

<A>
    <B>
        <C />
    </B>
</A>

So there are two problems:

• There is no indentation in the output


• The <C /> tag has been "unpacked", which I don't want.

I have tried with MSXSL.exe , and by using (via C++) IXMLDOMDocument2::transformNode outputting to a BSTR, both methods produce identical output.

What's going wrong here?