Confused...
every thing you have done seems to be correct, but mostly it is the issue of how you have the site set up. You need to have the site set up at the root of your CMS folder, otherwise when you made the update to the HTMLEditor, it created another HTMLEditor folder at the root of your site, instead of at the root of your CMS Folder. 
Note: I own the HTMLEditor and have all the other WebAssist Dreamweaver Extensions.
I created a new page on my site then with the HTMLEditor Extension for Dreamweaver inserted a (NEW) HTMLEditor on that new page. Next I went in and set up the css styles file for it and made the edits to the editor for styles I already described.
Note: That's why I wrote into the HTMLEditor forum instead of the CMS forum. This has nothing to do with CMS except that the page I set up for this test is in a CMS folder. The page is not connected with CMS in any way.
You are correct, the HTMLEditor that the extension created is in the root folder. My understanding is that this is correct behavior for the HTMLEditor extension. It SHOULD have nothing to do with the CMS system and should be located in the root folder. Also, the folder location of the file I inserted the HTMLEditor into should not be a factor.
If I insert a new HTMLEditor on a page and set it up for styles, it should work correctly right?
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