Even when the "Use Tab Character" setting is turned off in the editor settings, upon saving PhpEd converts all spaces to tab characters. I've confirmed this by converting all tab characters to spaces in Notepad++ then, when again working in PhpEd, all spaces are converted to tabs!

Maybe I'm missing something?

PhpEd Version: 6.09

"Use Tab Character" means insert <tab> instead of some number of spaces when you press Tab key.
It does not convert any tabs to spaces or vice versa.
What converts is "Optimal Fill" -- when this option is turned on, it converts all indenting spaces into Tabs.
But there is nothing in PhpED that would convert Tabs in to spaces.

To see how Tabs and spaces are handled in the editor you may want to turn View->"Show Hidden Characters" on.

Dmitri, thanks for clearing that up.