It looks like tab expansion is screwed up.  With OXTABS enabled, the file

    12345678
    
    
    ^Ij
    
    
    ^Ij
    ^Ij
    
    ^Ijj
    ^Ij

(indented four spaces, with caret-I replacing a tab) comes out looking
like:

   |$ cat test   
   |12345678
   |
   |
   |        j
   |
   |
   |       j
   |       j
   |
   |       jj
   |      j
   |$

(this time indented three spaces and a vertical bar)

This is reproducible with xterm windows, telnet from another host, and
on the i386 console.  Turning off oxtabs and thus allowing xterm,
telnet, or the console code to perform the expansion fixes the
problem.

If no one has observed this and submitted a PR and/or a fix, I'll try
to submit a PR *with* fix to boost the priority ;-), but I don't want
to waste time duplicating someone else's effort.