TinyMCE wipes out non-breaking space characters ( )

I had exactly this problem, and discovered this behaviour may be down to this:

http://tinymce.moxiecode.com/tinymce/docs/option_entity_encoding.html

I switched my encoding to 'named', and the issue seems to have gone away (certainly on Firefox 1.5.x). Hope that helps!

I encountered this problem long ago, and solved it by adding the following lines to tinymce.module (sorry, don't know how to create a proper patch) so that I could further configure the behavior of the editor.

These lines add two new settings in the admin panel for the module, and you can manipulate them to change the behavior of TinyMCE. If you change the setting "Convert new lines to BRs" from the default "False" to "True", the problem will be solved because the newline characters will be replaced with HTML linebreaks.

I'm updating priority to critical because this issue is a true pain in the neck for sites where the use of the editor is optional.

1st Edit:

  $init['preformatted']       = $settings['preformatted'] ? $settings['preformatted'] : 'false';
  $init['convert_fonts_to_styles'] = $settings['convert_fonts_to_styles'] ? $settings['convert_fonts_to_styles'] : 'false';

// <----------------- !!START OF NEW LINES!! ----------------->

  $init['convert_newlines_to_brs']   = $settings['convert_newlines'] ? $settings['convert_newlines'] : 'false';
  $init['remove_linebreaks']   = $settings['remove_linebreaks'] ? $settings['remove_linebreaks'] : 'true';

// <----------------- !!END OF NEW LINES!! ----------------->

  $tinymce_mod_path = drupal_get_path('module', 'tinymce');

2nd Edit:

  $form['output']['convert_fonts_to_styles'] = array(
    '#type' => 'select', 
    '#title' => t('Convert <font> tags to styles'), 
    '#default_value' => $edit->settings['convert_fonts_to_styles'], 
    '#options' => array('true' => 'true', 'false' => 'false'), 
    '#description' => t('If you set this option to true, font size, font family, font color and font background color will be replaced by inline styles.')
  );

// <----------------- !!START OF NEW LINES!! ----------------->

  $form['output']['remove_linebreaks'] = array(
    '#type' => 'select', 
    '#title' => t('Remove linebreaks'), 
    '#default_value' => $edit->settings['remove_linebreaks'], 
    '#options' => array('true' => 'true', 'false' => 'false'), 
    '#description' => t('This option controls if linebreak characters should be removed from output HTML or not. This option is enabled by default since many backend systems use newline to convertion since they used to be plain old textarea based. With this option enables all HTML content will be placed on one line.')
  );

  $form['output']['convert_newlines'] = array(
    '#type' => 'select', 
    '#title' => t('Convert new lines to BRs'), 
    '#default_value' => $edit->settings['convert_newlines'], 
    '#options' => array('true' => 'true', 'false' => 'false'), 
    '#description' => t('If you set this option to true newline characters codes gets converted in to br elements. This option is set to false by default.')
  );

// <----------------- !!END OF NEW LINES!! ----------------->

  $form['css'] = array(
    '#type' => 'fieldset', 
    '#title' => t('CSS'), 
    '#collapsible' => TRUE, 
    '#collapsed' => TRUE
  );

Here's a proper patch for review, based on the changes suggested above. Please review and comment.

http://drupal.org/node/130304

http://wiki.moxiecode.com/index.php/TinyMCE:Configuration/entity_encoding
To make tinymce not to replace entities' names with their codes or whatever we need to have this:
tinyMCE.init({
...
entity_encoding : "raw"
});

So I added
$init['entity_encoding'] = array( "named" );
to tinymce_process_textarea function in tinymce.module (after $init['elements'] = 'edit-'. $textarea_name;)

Sorry, correct varsion:

tinyMCE.init({
...
entity_encoding : "named"
});