This is a known IE bug. What happens is that when letter spacing is set the second <br> fails to render. If you have a look in Mozilla you should find that things works normally; at least they did when I tried it. I will have a look round the usual places and see if anybody has an easy fix for this.
You are right about the <br> tag and, I believe, they will be fixed for the next major release which will validate as XHTML.
EDIT.
Didn't need to look after all, just think. This is not particularly elegant as a solution but it does work.
Go to line 312 in parser.php and change it to this
$replace = array('<span style="letter-spacing:normal"><br></span>', ' ', ' ', ' ');
All this bit of code actually does is turn letter spacing off before the <br> tags are rendered and then it is turned back on again for the next line of text. You can also solve the problem using a non-breaking space but this will result in indented text.
You may have to make other adjustments in parser.php, infact wherever you see two <br> tags used. The method is the same in all cases though, just wrap them in a span which sets letter-spacing:normal.