On Python 2.3/IDLE 1.0, when I go from the editor to:

Options->Configure Idle->Font/Tabs

And set it to "Tab key inserts tabs" what actually 
happens is that the tab key inserts spaces (4 spaces).

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I cannot reproduce the problem.

This may be a silly question, but did you click Apply after 
changing the setting?

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Mmm.. I re-installed the Windows Python-2.3 installer EXE on 
a fresh PC and I have the problem, even when I hit "Apply" 
and "OK".
It is not a big deal of course, but would be nice if it worked..

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I can reproduce this on XP and Linux.

Of course, everyone should use 4 spaces :)

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I got the error. I am using Python 2.3.4.
Hitting TAB in the editor advances the cursor by "4" spaces
irrespective of the "indent width" in Configure idle...->
Fonts/Tab  -> choose indentation size:

I did a quick and dirty fix.
I had to modify the Line# 915 in file <py install
path>Python23/Lib/idlelib/EditorWindow.py

Requires restart of IDLE for the change to take effect.

[Before]
    indentwidth = 3
[After]
    indentwidth =
idleConf.GetOption('main','Indent','num-spaces',
                default=4,type='int')

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Removed Tab indentation selection from the Options
dialog.  Not appropriate for IDLE.  Tab indentation default
may still be configured 'manually' by modifying 
config-main.def but that's for experts.  You can switch on
tabs for individual Edit windows using the Format menu.
(Note: the Tab indent option was never finished and
never operable)

Changing the 'screen' indent width in the Options menu
will now be effective if you aren't using tabs (it's always
8 if you are using tabs).

Thanks for the patch and the reminder.