br and p tags get stripped out and converted to newlines, they’re not added until the post content is output. See the codex entry for the wpautop function, this is what is converting those newlines to br and p tags on the_content. It’s difficult to say what exactly is going here in this case though. I find it easier to stay in visual mode and shift-return the linebreaks in there and hard-return where I want the paragraphs.
