I never seen a tool which stores its XML config in a minified/uglified form by removing whitespace. The biggest two tools I play and which use XML are Keycloak and Eclipse, and none of them do this.
All of the parsers I used, and editors I have edited XML always shown the correct place where a caret is missing or XML is broken in anyway, so I have never hunted anything down inside a big XML file.
However, this doesn't invalidate your experience about unreadable XML files, which are most definitely present in the wild.
However, I agree that none of them are good config file formats, but storing data, I'll take XML all day, every day (except when I really need a binary file format, e.g.: for compressing data).