Linebreaks in TinyMCE editor show extra line on preview, not in code

I'm using the BBCode plugin with TinyMCE and see that line breaks are not showing the same between the preview and the HTML code.

I have the following lines in the editor window:

This is line one

This is line three

Line two is empty. When I'm viewing this in HTML I get the following.

This is line one
This is line three

Without the extra empty line.

tinyMCE.init({
    mode : "textareas",
    theme : "advanced",
    plugins : "bbcode",
    entity_encoding : "raw",
    remove_linebreaks : false,
    force_p_newlines : false,
    force_br_newlines : true,
    forced_root_block : ''
});

What am I missing?

Solution

I have tested it on my test page with Firefox 3.5.7 and Google Chrome 4.0.223.11.

html:

tinyMCE.init({
  theme : "advanced",
  mode : "textareas",
  plugins : "bbcode",
  content_css : "bbcode.css",
  entity_encoding : "raw",
  add_unload_trigger : false,
  remove_linebreaks : false,
  apply_source_formatting : false
});

The space between the paragraphs can be removed using a simple CSS ("bbcode.css") like this:

p {margin:0; padding: 0;}