Taxonomy hierarchy indenting

Instead of attempting to modify Notifications, I've added code to lookup the hierarchy structure and add (hyphenated) indenting in our theme layer, with the following in template.php:

// implementation of theme_notifications_form_table()
function MYTHEME_notifications_form_table($element) {

  // test for the vocabulary name here
  if( $element['#title'] == 'Categories' ){

    // get category taxonomy tree, and re-index by TID for quick lookup
    $rawtree = taxonomy_get_tree( CATEGORIES_TAXONOMY_ID ); // replace with actual vocabulary ID#, or define a constant
    $tree = array();
    foreach( $rawtree as $item ){
      $tree[ $item->tid ] = $item;
    }
    
    // scan through title array, adding hyphens to show depth
    foreach( $element['title'] as $tid => $title ){
      if( !empty( $tree[ $tid ]->depth ) ){
        $element['title'][$tid]['#value'] = str_repeat( '-', $tree[ $tid ]->depth ) . $title['#value'];
      }
    }
  }
  
  // pass back to default function
  return theme_notifications_form_table($element);
}

This was only written to handle a single vocabulary, but would be easy enough to adapt to multiple vocabularies.