Ok, that's weird. The markup is fine, and firefox, opera, chrome etc all work with it fine. Once again microsoft sucks Cthulhu damn ass and has to do stupid shit with IE.
I'll see if there's any IE specific thing I can do :|
In the mean time,
get firefox It is just in the plain text clipboard storage that it should happen. Meaning, if you copied some code from IE into wordpad (which supports rich text), it correctly preserves the line breaks.
I originally tried to write exta [ruby] tags based on client-side javascript syntax hilighting / selecting / copying etc, but SMF refused to play nice in letting content of <pre> tags go through unchanged. Makes sense, to stop hacking attempts, but I can handle it =|