I actually have a completely different error related to hidden tabs but when I have come to create a simplified fiddle example I am getting this error:
Error: TypeError: options.value is undefined
Source File: http://codemirror.net/lib/codemirror.js
Line: 55
Example: http://jsfiddle.net/gWZeQ/
var editor = CodeMirror.fromTextArea(document.getElementById("test1"));
<texarea id="test1" name="test1">function test() {
return false;
}</texarea>
I'm not sure why your code doesn't work, according to the docs it's fine.
However, here's a code that works ok :)
var myTextArea = document.getElementById("test1"),
var editor = CodeMirror(function(elt) {
myTextArea.parentNode.replaceChild(elt, myTextArea);
}, {value: myTextArea.innerHTML});
Demo: http://jsfiddle.net/edgarinvillegas/gWZeQ/1/
Cheers, from La Paz, Bolivia