The truth is...there is no straight answer.
Locate the ip08 document on CIC's website.
Start with page 41, near the bottom:
Applicant is inadmissible (lack of status inadmissibilities may be waived by the spousal policy)
Then, look at pages 53-54 to get a true definition of a person without status.
And finally, read this on page 57:
If it is determined that a sponsorship has been submitted, the officer will:
• Assess the applicant following normal procedures in IP2 and IP8 on the Spouse or Common-
law Partner in Canada class; and
• If it is determined that the applicant meets the other requirements of the Spouse or Common- law Partner in Canada class (a determination that the sponsor meets eligibility requirements, a bona fide relationship, and cohabitation with the sponsor), the requirement for the applicant to have valid immigration status (R124(b)) and the requirement not to be inadmissible for lack of status (A21(1) and R(72)(1)(e)(i)) is waived by A25 under this public policy.
Since CIC changed the language in the Inland Guide last September, that now says that a person must have legal status to apply...who knows what this really means, since IP8 has not been updated, removing this public policy.
While there are a few members that feel that an Outland application is an option, I suspect that the vast majority of those without status have chosen the Inland path, since the aforementioned language found in IP08, does not appear in any of the Outland processing manuals, AFAIK.
Lastly, submitting an OWP with an Inland application will not reduce the chances of a person without status being removed. There was a CBSA Administrative Deferral of Removal policy in place that worked in tandem with CIC's public policy, but that may have ended in November 2011 (according to at least two immigration lawyers), while others believe that CBSA is still `watching', without acting until they know if an applicant has been denied. This is detailed on page 59 of IP8 (section F).
