The problem could be due to using IE8 running on XP. I am still using it because I have several programs that will not run on Windows 7.
The newlines (carriage return / linefeed) are actually in the reply box; they are still there if I copy the text and place it in notepad, for example. So I imagine they are just getting stripped out somewhere in the process of submitting the reply.
I assume everyone starts out with the same default settings when they start using the forum, and since no one seems to be doing anything special, I would guess that the problem lies at my end with IE8.