WHILE TROUBLESHOOTING A BLEED VALVE PROB; B737-700 CREW FORGETS TO RESET ALTIMETERS AT 18000 FT RESULTING IN ALTDEV UPON LEVELOFF.

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CLBING OUT OF OAK AT 10000 FT; WE NOTICED THAT THE R ENG BLEED VALVE APPEARED CLOSED. WE THEN STARTED TROUBLESHOOTING THE PROB; REFERRING TO THE QRH AND MEL. WE CHKED THE CIRCUIT BREAKERS AND CYCLED THE BLEED; ISO; AND PACK SWITCHES IN ATTEMPT TO OPEN THE STUCK BLEED VALVE. DURING OUR TROUBLESHOOTING; WE MISSED THE 18000 FT CHKLIST AND FORGOT TO RESET OUR ALTIMETERS TO 29.92. WE WERE INITIALLY CLRED TO FL410. AFTER REVIEWING THE MEL AND ATC RIDE RPTS; I ELECTED TO LEVEL OFF AT FL350 SINCE THE CABIN PRESSURE WAS OK AT THAT ALT. SHORTLY AFTER LEVELOFF; ATC ASKED IF WE WERE LEVEL AT FL350; HE SHOWED US 200 FT LOW. WE THEN NOTICED OUR ALTIMETER SETTING 30.18 AND RESET 29.92; CLBED TO FL350. ATC THEN CONFIRMED WE WERE AT FL350. I DID NOT NOTE ANY TFC CONFLICTS NOR DID CTR INDICATE ANY. WE CONTINUED TO OUR NEXT CITY AND MEL'ED THE PACK. MY MISTAKE DURING THE TROUBLESHOOTING WAS THAT NO ONE WAS PRIMARILY FLYING THE ACFT AND THAT WE BOTH WERE TRYING TO TROUBLESHOOT. I SHOULD HAVE GIVEN THE ACFT TO THE FO TO FLY WHILE I REVIEWED THE MEL AND QRH. WE WOULD NOT HAVE MISSED THE ALTIMETER RESET HAD SOMEONE STAYED TUNED TO FLYING THE ACFT.