After really zooming into your third image above, I noticed that it doesn't have tight spacing at all. It's just that the lines are so long for the first half of your Favorites that I mistook it to be. The rest of it, including, most importantly the Inbox itself at the bottom, is very broad. And I think that was your best-case image.
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This is of renewed interest because I tried installing the latest build in a VM and do NOT see the problem I've been describing. In fact, the spacing is extremely tight, closer even than I remembered being possible:
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So, there's another variable in play here such that in a clean install the spacing is like that automatically but otherwise you're out of luck. I assume it's some other part of the Office Registry.