I'm not seeing this behavior. Here's the script I used from the Query Analyzer. Just be sure that you view the results in the Text view and not the Grid view.

DECLARE @xml nvarchar(4000)
DECLARE @h int
SET @xml = '
<root>
	<row id="1"> THIS IS 
SO         ME
DATA</row>
</root>'

EXECUTE sp_xml_preparedocument @h output, @xml

SELECT * FROM OPENXML(@h, '//row') WITH (id int '@id', note nvarchar(2000) 'text()')

execute sp_xml_removedocument @h

-Mike