I have a similar problem. But mine is not caused by the plugin… everything is saved without the proper paragraph tags <p></p>. I checked if from the database and everything was just in a single line (no <p> tags at all).
I tried writing a new post using the CODE mode. I made two-paragraph post (of course using the <p> tags) and published it without a glitch… it worked perfect.
However, after I updated the same, the <p> tags were then neglected by the ‘edit’ box after saving.
I think the problem is in the posting/writing section. I am new with WP, but i think this issue has something to do with their WYSIYG input box.
I hope this will give some lead to the cause of this problem…