If you are using the first release version of Eclipse 4.4 Luna, there is a bug in Windows->Preferences->XML->XML Files->Editor.
You can not change the settings for indentation size when using spaces. It is impossible to write a new number in the field and the -/+ buttons are disabled. The default value is 1! :(
The work around I found is to edit the following file in your workspace:
.metadata/.plugins/org.eclipse.core.runtime/.settings/org.eclipse.wst.xml.core.prefs
And add the following line (if you want 4 char for your indentation):
indentationSize=4
