Is this lack of indent what you see in the Index Pane or in the generated index? To get the generated index, use the key combination Shift+F12 and it will open as a Rich Text File. Use the key combination Shit+F10 to view the Index Pane without the (data entry) grid.
Sometimes, if things go wacky (which they just about never do, but sometimes...), I'll shake things up by going to Options>Index>Index Style and changing the Preset. Yours is likely set at Indented. Choose another one -- like Run-on 1st subheading. Then close the index and/or close the program. Reopen SKY and your index file and choose Indented style again and see what happens. Hopefully that fixed it.
If you continue to have difficulty, the next step is to close that index and create a new one. Then click on File>File Management>Merge and choose your problem index to merge into this one. You will have to re-set all the index style options, but this certainly clears out any gremlins and your data will be intact.
Knowing tricks like this gives us control over our indexing software.
Deborah