I am not familiar with such a problem and unfortunately I was unable to reproduce it. The blank characters should be saved as <br/> tags in the database. My suggestion is to install the demo examples of RadControls for ASP.NET AJAX and try to reproduce locally the problem using the Save in Database
and / or Edit Item Template
Please, also make sure that you are testing with the latest version of RadControls for ASP.NET AJAX Q1 2011 SP1.
the Telerik team