The following works, but in GRID mode you won't see it and in TEXT mode they won't line up under the Cities column.

Create TABLE #tempCityState (State Varchar(5), City Varchar(50))

Insert Into #tempCityState

Select 'CO', 'Denver' Union

Select 'CO', 'Teluride' Union

Select 'CO', 'Vail' Union

Select 'CO', 'Aspen' Union

Select 'CA', 'Los Anggeles' Union

Select 'CA', 'Hanford' Union

Select 'CA', 'Fremont' Union

Select 'AK', 'Wynne' Union

Select 'AK', 'Nashville';

--Select Distinct State, (Select Stuff((Select ',' + City

--From #tempCityState

--Where State = t.State

--FOR Xml Path('')),1,1,'')) AS Cities

--From #tempCityState t;

with States as (

select distinct

State

from

#tempCityState

)

select

State,

stuff((select '' + City + char(13) + char(10)

from #tempCityState tcs

where tcs.State = States.State

order by tcs.City

for xml path(''),TYPE).value('.','varchar(max)'),1,0,'') as Cities

from

States;

Drop table #tempCityState