I don't have a Policies section in my HKEY_Current_User, but if changing the ReplyStyle in that section works for you, that's your solution. The administrator for your computer apparently established policies that set the default for the indented return on email replies. That's why you couldn't change it directly in the Outlook Options panel.
From past experience in Experts Exchange questions, users often have access to settings in the registry and can overcome policies if only they know which key to set. I found ReplyStyle by a process of trial and error.
Brad
