Thank you, Kris. I should add that italic/bold/other formatting also gets removed after highlighting a passage and pressing the Copy
button in Marvin and pasting into a rich-text editor. Paragraph breaks do get preserved. For copy-paste operations, however, I don't think it's as important for the formatting to be preserved as it's important in the XHTML file. Marvin users might wish to share their XHTML files with other readers, and if the highlighted passages are distorted in them, it just doesn't look good.
I have also tested this in Bluefire Reader with its export of highlights/notes via email, and it does the same thing: converts highlights to plain-text, removes manual line-breaks from notes. I hope that this is not another iOS obstacle that it will be difficult to overcome (similarly to the highlighting bugs).
Finally, I tested this in iBooks, but because it absurdly doesn't export highlights along with the attached notes, nothing can be said about the highlights there. However
, if you export the notes from iBooks, the hard line-breaks in notes do get preserved, which gives me hope.
(For copy-paste, formatting is removed in iBooks, too, but like I said, this is not as important as the exported
highlights/notes being precise.)