This "stripped xml parser" bug drove me crazy for a long time, since WLW worked fine and then stopped. For those of you experiencing the issue where the html tags are getting stripped out such as "<" and ">" so that the formatting is all mangled, it is a known bug between PHP versions less than 5.2.9 and libxml2 2.7.3. It was introduced when libxml2 upgraded around in mid 2008 to the 2.7.x series. This is why it can "appear" on your server when things were working fine if you are on shared server and they upgraded libxml at some point.
There was some "debate" about if it was the libxml or php bug, but I think in the end it was decided it was an issue of hack code in php that worked fine, up until the libxml team upgraded their package and broke the hack. This issue wasn't fixed in PHP until 5.2.9, which came out about 1.5 months ago.
The known fixes are to either downgrade version of libxml to 1 series, recompile php to use another library other than libxml, or to upgrade to libxml 2.7.3 or newer and php 5.2.9. Note these are server level upgrades, which will have to be done by your service if on shared server. You have to have both the libxml 2.7.3 and php 5.2.9 versions or it will still be broken since there appears to be some mutual problem code on both pieces of software on prior versions.
http://social.microsoft.com/Forums/en-U ... ec06b142b/
My service just upgraded to php 5.2.9 and libxml 2.7.3 and the issue was resolved for both WLW and ScribeFire.
Wordpress users had some patches on their end to fix regardless of the php and libxml versions.
http://blog.hoofoo.net/2009/01/14/wordp ... 2-version/