PRE is intended to preserve whitespace exactly as it appears (unless altered by white-space in CSS, which doesn't have enough flexibility to support formatting code).

Before

Formatting is preserved, but so is all the indentation outside of the PRE tag. It would be nice to have whitespace preservation that used the location of the tag as a starting point.

After

Contents are still formatted as declared, but the extraneous leading whitespace caused by the position of the PRE tag within the document is removed.

I have come up with the following plugin to solve the issue of wanting to remove superfluous whitespace caused by the indentation of the document outline. This code uses the first line inside the PRE tag to determine how much it has been indented purely due to the indentation of the document.

This code works in IE7, IE8, IE9, Firefox, and Chrome. I have tested it briefly with the Prettify library to combine the preserved formatting with pretty printing. Make sure that the first line inside the PRE actually represents the baseline level of indenting that you want to ignore (or, you can modify the plugin to be more intelligent).

This is rough code. If you find a mistake or it does not work the way you want, please fix/comment; don't just downvote. I wrote this code to fix a problem that I was having and I am actively using it so I would like it to be as solid as possible!

/*!
*** prettyPre ***/

(function( $ ) {

    $.fn.prettyPre = function( method ) {

        var defaults = {
            ignoreExpression: /\s/ // what should be ignored?
        };

        var methods = {
            init: function( options ) {
                this.each( function() {
                    var context = $.extend( {}, defaults, options );
                    var $obj = $( this );
                    var usingInnerText = true;
                    var text = $obj.get( 0 ).innerText;

                    // some browsers support innerText...some don't...some ONLY work with innerText.
                    if ( typeof text == "undefined" ) {
                        text = $obj.html();
                        usingInnerText = false;
                    }

                    // use the first line as a baseline for how many unwanted leading whitespace characters are present
                    var superfluousSpaceCount = 0;
                    var currentChar = text.substring( 0, 1 );

                    while ( context.ignoreExpression.test( currentChar ) ) {
                        currentChar = text.substring( ++superfluousSpaceCount, superfluousSpaceCount + 1 );
                    }

                    // split
                    var parts = text.split( "\n" );
                    var reformattedText = "";

                    // reconstruct
                    var length = parts.length;
                    for ( var i = 0; i < length; i++ ) {
                        // cleanup, and don't append a trailing newline if we are on the last line
                        reformattedText += parts[i].substring( superfluousSpaceCount ) + ( i == length - 1 ? "" : "\n" );
                    }

                    // modify original
                    if ( usingInnerText ) {
                        $obj.get( 0 ).innerText = reformattedText;
                    }
                    else {
                        // This does not appear to execute code in any browser but the onus is on the developer to not 
                        // put raw input from a user anywhere on a page, even if it doesn't execute!
                        $obj.html( reformattedText );
                    }
                } );
            }
        }

        if ( methods[method] ) {
            return methods[method].apply( this, Array.prototype.slice.call( arguments, 1 ) );
        }
        else if ( typeof method === "object" || !method ) {
            return methods.init.apply( this, arguments );
        }
        else {
            $.error( "Method " + method + " does not exist on jQuery.prettyPre." );
        }
    }
} )( jQuery );

This plugin can then be applied using a standard jQuery selector:

<script>
    $( function() { $("PRE").prettyPre(); } );
</script>