Okay. I have verified that WordPress 3.5 has a bug in the way text in posts are changed into hyperlinks. I uninstalled 3.5 and installed 3.4.2: Problem gone!
Just to verify, I uninstalled 3.4.2 and reinstalled 3.5: Problem right back again!
Anyone got any ideas on how to fix this? I guess I will stick with 3.4.2 for now.