Just noticed that now, the default setting of 4 spaces works fine. Makes sense that the number of spaces matters.
I think most IDEs will allow you to change the number of spaces that a tab character is rendered as, while in the actual file there will be a \t instead of 4 spaces characters (or whatever you have it set to). I had assumed that it would work similarly in Obsidian, but it sounds like it is a constraint of the format to use only use spaces.
Might be worth revisiting if it makes sense to even have a setting that, if ever changed from the default value, has the potential to cause things to render poorly, but as far as this post goes it can be disregarded.
Thanks!