By default, the_excerpt strips formatting from your excerpts, and for very good reason. if you don’t, and your excerpt closes before a tag or link has closed, it’ll possibly break your site (at worst, it’ll just mess up the formatting for everything beneath tat particular excerpt, or turn your site into one huge link – but I had a custom theme I did for someone who wanted this same thing, and it actually broke the entire site. I *told* them and they didn’t believe me until they saw it for themselves.)
If you want to allow formatting, you have toi either write your own function to make it happen, or use a plugin. A really good one is the_excerpt_reloaded. But be sure to visit this site to get a small fix for it.
