I am also having trouble persisting the entity in IE8. I'm using 2009.2.701.35.
In particular, I use the following to break up sections in long documents:
|<p>...conclusion of last section.<p>
In Design mode of the editor, you can get the <p> </p> by hitting enter to create a blank line. When you first switch to HTML mode, the is there. Switch back to Design then back to HTML and the is replaced by an actual space (ASCII 32).
This seems like a bug to me. Even if it isn't, I still would like to come up with a workaround for this.
Like Chris, it is extremely important for me to preserve these entities.
This problem is reproducible without round trips to the server and without cutting and pasting text from anywhere. The Editor creates the and it takes it away.