I don't have this problem anymore and it was a combination of 2 things
- upgrading to the latest and greatest Service Pack.
- Making sure there are no user controls that call other user controls in the same folder/namespace.
once I move the user controls to a different name space it stops having problems and manages to do indenting properly. I am sorry I can't figure out where I found this tidbit. but thank you to the person who put it out there.