FormatOutput doesn't format properly properly

It seems the FormatOutput option of FCKeditor doesn't quite work properly. I think it has something to do with the integration with drupal, because the plain FCKeditor itself doesn't exhibit this problem (tried with demo at http://www.fckeditor.net/).

When FormatOutput is true, FCKeditor is supposed to format its output to insert line breaks after certain types of end tags. However, it doesn't always work. For example, if I type:

123

The numbers 1, 2, and 3 are each in their own paragraph. I expect the output of FCKeditor (back to the webserver) to be:

1

2

3

But actually, I get:

1

2

3

HOWEVER, if I click on the "Source" view, I get to see the source properly formatted (FormatSource is also true), and the submitted output back to the webserver is with the appropriate line breaks as expected.

Another way to do observe the problem. When NOT in "Source" view, click on "Switch to plain text editor". The HTML is bunched up in one line. If I am in "Source" view, then click on "Switch to plain text editor", the line breaks are as expected.