Yes, I do know about the collapsing, and yes, there is very probably some plugin for correcting XML indentation. Here are a few notes about this idea:
Malformed XML might break an implementation of this in hideous ways. Also, there could be some hard limit on the number of colors so that there isn't a whole lot of time being spent generating the colors if some (valid but poorly thought-out) XML file has a large number of levels of nesting. I do understand that Sublime Text is a text editor first an foremost and not an IDE or an XML viewer so a plugin for this (maybe with adjustable configurations on how many levels of nesting to consider) may be a better idea if implementing this feature request.
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