Well, I tried 2.0-beta-3 as well as the current 2.0-beta-4-SNAPSHOT (build from source r611604), both embedded newlines as I expected. I attached the generated changes-report.html just that you can get a feel of it.
I previously tried to point out that the plugin currently misuses the SAX API (i.e. makes invalid assumptions about the parser callbacks). Please, consider the implications of the following quotation from the already mentioned "Top Ten SAX2 Tips":
It'd be legal (but annoying) for the parser to report one character per callback
Also, see the final note in the paragraph "Handling events" from the SAX Quickstart or the related question in the SAX FAQ. The issue of unwanted newlines may be hard to reproduce but it is there.
Just for the fun of it, I extended the changes.xml to contain a really long line (only alphanum's so the browser won't wrap). In the resulting HTML output, I get a line break every 2048 characters... if I only had some money, I would bet this is the size of the parser's character buffer Dennis, maybe you can also reproduce this issue by yourself if you try a changes.xml with at least 8 KB or 16 KB character data in a line.
Apropos parsing: What happened to the efforcts in
MCHANGES-47 to bring Modello into the game? If I understand Modello correctly, it frees the plugin developer from parsing, thereby reducing the chance for errors like this.