I think this is bug - but before I enter it, if anyone has comments, enetering this in the forum first.
functions-formatting.php was fixed to handle script/pre/code/style/kbd tags - as per this issue:
But - it left out handling of
<embed .... />
which is used to add Flash or other similar objects - the above code gets sprinkled with br and p tags, which breaks it. Even putting everything above in a single line did not work - I got one br sneak in in between a >< in the input.
Since the script and other HTML tags were fixed, I think this should be trivial to fix.