WordPress [2.3.1] editor doesn't create paragraphs correctly in Safari [3.0.4]. The problem appears to be rooted in converting the visual contents to code as this procedure will demonstrate:
Create a new post. Select the CODE tab. Type three short paragraphs separated by newlines. Choose VISUAL tab and note that paragraphs are preserved. Now select CODE tab again. Text becomes one paragraph (no visible tagging).
The act of switching from VISUAL to CODE or saving the post (which must do an implicit VISUAL2CODE) wipes out the paragraphs. This does NOT happen in Mac Firefox [188.8.131.52].