'Straight out of the box' ...
It's very much 'straight out of the box', Jimmy. Certainly didn't change any settings manually. Using DW CS4, created a recordset and used the Update Record Wizard to create a form with a textarea where the content is. Then used iRite 1.0.2 to turn that into an editor.
In all the time I've been using iRite I don't think I've ever seen it work without that issue. Just had some spare time to investigate why.
The server is running PHP 5 (not sure exactly what version) and MySQL.
I've attached the file.