This has been fixed in Hardy, with tidy version 20080116cvs-2
debian/tidy.install now reads:
debian/tidy.conf /etc/
so tidy.conf will be installed in /etc instead of /etc/tidy.
Thank you again for taking the time to report this bug and helping to
make Ubuntu better!
** Changed in: tidy (Ubuntu)
Status: New => Fix Released
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/etc/tidy/tidy.conf is not read by tidy
https://bugs.launchpad.net/bugs/110033
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