Fix normalize_paths to allow whitespace

This fixes normalize_paths so that it strips whitespace before and after
paths before working on them. This allows you to do specify excludes
with multiple lines in the config file.

This also tweaks normalize_paths so that the behavior matches the
docstring.

This also adds tests.

Fixes #339
This is the fix for issue #339. It strips whitespace before and after the path before doing further processing.