I can't believe I didn't notice that and spent so long trying to figure it out too! It wasn't checked by default and I hadn't realised it was there...
Thanks so much acrylian and sbillard for your replies and help.
sorry to revive an old thread, but for some reason I'm having this problem again with 1.4.0.4. tinymce appears to be working fine and creating the correct html, but extra br tags are getting stuck at each return if i use printAlbumDesc(true); to print my album descriptions. It's a template I developed on an older version of zenphoto (1.3.1) so there might be something wrong with it, but I can't find anything. I have Front-End Editing turned off.
For now I'm getting around the problem by using echo (getAlbumDesc()); to print the descriptions instead. That works fine.