<p>By default IntelliJ IDEA 7.0.4 seems to use 4 spaces for indentation in XML files.  The project I'm working on uses 2 spaces as indentation in all it's XML.  Is there a way to configure the indentation in IntelliJ's editor?</p>

Sure there is. This is all you need to do:
Go to
```
File -> Settings -> Global Code Style -> General
```
Disable the checkbox next to 'Use same settings for all file types'
The 'XML' tab should become enabled. Click it and set the 'tab' (and probably 'indent') size to 2.