I'm not sure allowing each developer to set their own indentation level works very well in teams doing pair programming.

Of course you let the team decide the indentation scheme and then everybody sticks to it. There is no reason to allow chaos :-)

Here's all I have to say about tabs. I expect the source to look the same no matter whose editor, pager, printer or utility I run it through. Literal tabs violate this. The end.

Well, that is one way to see it but it feels too dogmatic for me. To achieve it, you would have to dictate coding standards and enforce them brutally.

The code never looks the same (unless I have total control over it, which I rarely do) and people tend to write code differently using different formatting (opening braces, spaces in array indexing etc.) and some editors provide syntax high-lightning and other tools forcing the looks to be different. The style to aim for is the one that can be changed/converted to the desired format, no matter what scheme or tool was used.