You need to strip slashes from your option values when you echo them into the admin screens, and again when you echo them for the actual widget and template tag. Try entering
<h2 class="widget-title"> in "Before / after title:" to see the undesired effect currently. You can use the PHP function
I would like it if you also allowed an option to use the default sidebar before/after title and before/after widget HTML, rather than having to specify it again in the options.