To start a new paragraph, enter <p>, which is just your standard HTML start tag.
Switching back and forth from Edit HTML to Compose makes it display correctly in the editor.
The Preview looks fine, too, but switching back leaves the HTML exposed, if you have not already gone to Edit HTML and back to Compose.SGML literals, such as < and >, have to be entered in the Edit HTML mode.
What I really wish it would do:
- One Return inserts a <br>
- Two Returns inserts a <p>