XSLT to normalise whitespace and but leave inner HTML

I'm trying to use XSLT to transform XML into a plaintext file for loading into a database. One of the elements I need, however, might contain HTML formatted text which I need to preserve, and newlines and whitespace which I don't. I also don't want the XML namespace.

The file is large and more complicated, but the problem should be covered by the following example.

XML:

<outer xmlns="urn:site-org:v3/m2" >
  <inner>
    <text>
      <p>This is text with markup</p>
      <p>This is text with <i>more</i> markup</p>
    </text>
  </inner>
  <inner>
    <text>
      Need text with no markup also
    </text>
  </inner>
</outer>

Desired output:

<p>This is text with markup</p><p>This is text with <i>more</i> markup</p>
Need text with no markup also

With an output format of text, normalize-space() cleans up all the newlines and whitespace, but also removes the tags.

I've tried using xml output and xsl:copy-of, but this leaves the line breaks, and the namespace, and character encodes some of my other output (& -> &) which is undesirable.

Thanks in advance for any ideas!