Various bugs related to formatting the XML behind the scenes during GUI editing have been fixed. You should no longer end up with blank lines, and the editor should be smarter about indenting relative to your own edits.

In addition, there is an option to apply Eclipse's own XML formatter to the source code automatically during edits. This will apply any specific Eclipse XML formatting preferences you have set, such as line-breaking on attributes, tabs versus spaces, etc. You can turn on XML reformatting (which is off by default) in the Android preferences panel.