I haven't fully tested the expanding/collasping feature becaues this is not required for my present project.  I did experiment with it a little.  It appears the checkbox controls the expanded state. Now my tree requires the checkboxes and I did notice there is a span with with space within the list item so this may be what's causing the expand/collaspe.  Again I didn't dive to deep into it.

There is 1 minor change that I made concerning checkboxes in the BuildItem function. I added a label if the treeview has checkbox, if not it outputs the raw text.

if (((item.ShowCheckBox != null) && (item.ShowCheckBox.Value == true)) ||
   (treeView.ShowCheckBoxes == TreeNodeTypes.All) ||
   ((treeView.ShowCheckBoxes == TreeNodeTypes.Leaf) && (!IsExpandable(item))) ||
   ((treeView.ShowCheckBoxes == TreeNodeTypes.Parent) && (IsExpandable(item))) ||
   ((treeView.ShowCheckBoxes == TreeNodeTypes.Root) && (item.Depth == 0)))
{
 writer.WriteBeginTag("input");
 writer.WriteAttribute("type", "checkbox");
 writer.WriteAttribute("id", treeView.ClientID + "n" + _checkboxIndex.ToString() + "CheckBox");
 writer.WriteAttribute("name", treeView.UniqueID + "n" + _checkboxIndex.ToString() + "CheckBox");


 //Added a javascript attribute to the checkbox this event marks children/parents appropiately
 //This would be great if a new property could be added and assigned to so the javascript can be
 //dynamically generated.
 writer.WriteAttribute("onclick", "SBI_TreeViewCheck(event);");
 if (item.Checked)
 {
  writer.WriteAttribute("checked", "checked");
 }
 writer.Write(HtmlTextWriter.SelfClosingTagEnd);


 // added the following if statement to create label for checkbox
 if (item.Text.Length > 0)
 {
  writer.WriteLine();
  writer.WriteBeginTag("label");
  writer.WriteAttribute("for", treeView.ClientID + "n" + _checkboxIndex.ToString() + "CheckBox");
  writer.Write(HtmlTextWriter.TagRightChar);
  writer.Write(item.Text);
  writer.WriteEndTag("label");
 }
 //and added code


 _checkboxIndex++;
}
//added else to if-checkbox statment and moved the item.Text into it.
//this allows the text to display within a label associated with the checkbox.
//if there is no checkbox then the text is just raw text.
else
 writer.Write(item.Text);

I also added an onclick attribute to the checkbox.  This event recurses the tree and marks the childern/parents appropiately. here is the javascript:

//globals
var checkedState; //bool
var parentState; //bool

function SBI_TreeViewCheck(e)
{
    // obj gives us the node on which check or uncheck operation has performed
    var element = e.srcElement || e.target; 
    parentState = true; //default true;
    
    //checking whether obj consists of checkbox to avoid exception
    if (isCheckBox(element))
    {
        checkedState = element.checked;
        
        //work our way back to the parent <li> element 
        while (!isListItem(element))
            element = element.parentNode;
        recurseThroughChildren(element.firstChild); //set child nodes to checkedState
        
        //from the <li> work our way back to the parent <ul> element 
        while (!isList(element))
            element = element.parentNode;
        recurseThroughParents(element); //set parent nodes accordingly
    }
}

function recurseThroughChildren(element)
{
    var chkbox;
    while(!isNull(element))
    {
        //mark the child checkbox the same as the parent
        chkbox = getCheckBox(element);
        if (!isNull(chkbox))
            chkbox.checked = checkedState;
        //recurse through children of current element
        recurseThroughChildren(element.firstChild);
        element = element.nextSibling;
    }
}

function recurseThroughParents(parent)
{
    //if it is an unorderd list, process children
    if(isList(parent))
    { 
        //get all child elements that are list items
        var item = parent.getElementsByTagName('LI')[0];
        var chkbox;
        
        //foreach list item...
        while(!isNull(item))
        {
            //whle the children are not check boxes (only 1 checkbox per list item)
            chkbox = getCheckBox(item.firstChild)
            if (!isNull(chkbox) && !chkbox.checked)
                parentState = false;
            item = item.nextSibling;
        }
        var parentCheckBox = getCheckBox(parent.parentNode);
        if (!isNull(parentCheckBox))
            parentCheckBox.checked = parentState;
    }
    if (!isDiv(parent)) //if it is not a div tag countinue to the next parent
        recurseThroughParents(parent.parentNode);
}

//return the first checkbox found
function getCheckBox(obj)
{
    var ret = null;
    while (!isNull(obj))
    {
        if (isCheckBox(obj))
            ret = obj;
        else if (obj.childNodes.length > 0)
            ret = getCheckBox(obj.firstChild);
        if (isCheckBox(ret))
            break;
        obj = obj.nextSibling;
    }
    return ret;
}


//helper functions
function isDiv(obj)
{
    if (isNull(obj))
        return false;
    return (obj.tagName == 'DIV');
}

function isCheckBox(obj)
{
    if (isNull(obj))
        return false;
    return (obj.tagName == 'INPUT' && obj.type == 'checkbox');
}

function isList(obj)
{
    if (isNull(obj))
        return false;
    return (obj.tagName == 'UL');
}

function isListItem(obj)
{
    if (isNull(obj))
        return false;
    return (obj.tagName == 'LI');
}

function isNull(obj)
{
    return (obj == null);
}