Yes notepad will do it just fine. XML isn't that strict; as long as the elements are there (between the angle brackets) it will read the data just fine. Don't worry too much about carriage returns or other whitespace. You'll see that there's just one waypoint per line.
Having said that, it shouldn't be necessary to edit the file manually when you can use SkyAngel to do it. But, if you wanted to import a load of waypoints from a friend, pasting them in to the file would work just fine.