What happened to the formatting of my old posts?

I've just spent over 2 hours reformatting all my old posts which someone pointed out to me had lost all its paragraphs. Blogger had mashed all the text up into one big blob! Example below:

I assume that this has something to do with the new "Post Options" you see below the editorting box of Blogger.

By default the options are set to Press "Enter" for line breaks and Interpret typed HTML. I stuck with the first option but didn't like the sound of Interpret HTML so instead picked "Show HTML literally".

Quite honestly I can't see any difference in the editor's behaviour when I entered my latest posts. The editor is still awful. I constantly have to switch into HTML mode in order to delete tens of unwanted <DIV>s that the editor has inserted, causing text and pictures to be misformatted.

The problem still exists whereby I add a line break and then publish the result only to see that the page shows two blank lines. The trick is to delete everything from the beginning of the next paragraph right up to the full stop of the previous one. Then hit <Enter>. This usually does the rick of removing unwanted formatting tags. Its so annoying though!

The Spelling button at the top right hand side only works occasionally. At the moment, as I'm typing it has stopped working!

Sometimes the Image Menu refuses to pop up or appears for a fraction of a second and then disappears. I have to save and reload the page.

Why were my older posts corrupted?

When will Blogger get their act together?