Outlook 2003 - Indent not happening

[MikeS]

I am using MS Word 2003 to edit emails in Outlook 2003. My message
format is HTML

In Word 2003, if I use the bullets or numbering, pressing the TAB key
works as expected. The bullet and the text indents appropriately.
And the bullet changes levels (becomes a sub-bullet)

But in Outlook 2003, only the text indents. The bullet stays lined up
with the ones above it, and it stays as a "level 1" bullet (doesn't
become a sub-bullet).

I compared my settings to a coworker who doesn't have this problem.

Any ideas?