Hi
Please fix your demo, because
1. It is not a valid markup
2. It is not even XHTML - please change you DTD, because you are using it in a wrong way. IFRAME is not a part of XHTML Strict. Send the correct content-type header and look at the site in a modern browser.
You probably know all of this, but you should clarify, that you are only XHTML Transitional compliant, not XHTML in general.
My site makes use of XHTML Strict, sending the correct application/xhtml+xml header. And that means, I can't use your editor.
Please correct me if I'm wrong (I wish I was!)