I am not sure if this is how the code explorer/navigator should be working. The on thing is if i have a class the extends a class that extends a class, the code explorer will show all all members/method of a class and the class it extend which can be expanded to show that classes member/methods and any class that might extend and so on but as far as i can tell PhpED does not do that. is that the way it is designed?

What really important is to show all methods and properties including inherited ones in the code completion dropdown and PhpED does do that. It also recognizes all methods and properties including inherited ones when you use Find Declaration.
Regarding CodeNavigator it is supposed to show only things defined in _current_ file.

I think it would be very useful that if the code nav is showing a class in also includes methods and members from inherited classes, why not show it there if you show it in auto complete?

Although it may be useful, it has some pros and cons. First, it will duplicate the content in Code Explorer so the same property or method will be listed there one, two or more times. This will dramatically slowdown updates for Code Explorer, especially in case of big projects with huge class hierarchy.

yes but the code explorer show all classes/functions/etc... in a project and included paths(correct me if this is not right). This mean if i have a framework like zend which has 100's of classes(there are 1500+ number of files), that mean is this one class inherits from 3 other class it would not be very easy top locate them(sure you could search). I not saying this should be done by default but maybe have an option to allow in the code navigator to also inlcude extending classes, i can't imagine i would be the only one to find this useful.