Rick,
I watched your video and have one suggestion to try. Use the Paste as plain text icon on the toolbar in place of Cntl-V or mouse right-click paste to paste the text into the box.
My guess is... The editor didn't get a chance on the original paste to do proper format on the text (paragraph code, returns, etc.), and won't in the steps I saw UNTIL it is given that chance by a second pass with the editor, when the Saved Listing is edited, i.e. it reexamined the stored code, sees the errors and drops the bad code with formats. The Paste tool should do proper format (that's its job). Switching to HTML mode and back might also make it LOOK and FIX bad code (does that for me on some tests). You could try that immediately after Cntl-V paste and see if that also fixes the problem.
Neil's tips made me think about how it might see that unstructured paste, that's bypassing the editor's paste methods.
Danno
Edit: I'm not only replicating the problem from your video, I'm finding that the need to use the Icon Paste tool is only necessary with FIREFOX! I noticed you weren't using IE. When I do it from IE (straight paste to the box without use of the tools), it also creates correct code. It appears the IE version intercepts and corrects automatically, possibily due to it's popup asking permission for the paste. However, I would recommend use of the toolbar Paste Tools for ALL PASTING to the box. That seems to work 100% with all browsers I've tested.
Katy,
Since you are also using Firefox, are you also using Paste without using the Paste Icons tools? If so, use the Paste as plain text Icon on the toolbar (upper left with a "T") to paste from Notepad.
Danno
Oh....and a BIG THANK YOU to Neil!