Hello,
 
I have an issue that is also reproducible in the demo @ http://cutesoft.net/example/general.aspx
 
1. Paste this into the text editor in 'Normal' mode:
 
Header 1
Text
Header 2
Text
 
2. In HTML mode, it should look like this:
Header 1<br />
Text<br />
Header 2<br />
Text <br />

3.  Place the cursor on the first line. Press Heading 1.
4.  All 4 lines will be changed to <h1>.
5.  Undo changes in (1) & (3), now highlight the first line (Header).
6.  Press Heading 1. All 4 lines will be changed to <h1>.
 
I noticed that this behaviour doesn't happen if the text is typed in (rather than pasted). The HTML for the typed in content vs the pasted content differs; the typed in lines are separated by <div> tags,  whereas the pasted content is separated by <br> tags.
 
Note: This does not happen on Firefox & Chrome. I've reproduced the issue with IE8.
 
Thanks in advance for looking into this!