Quite some time ago I also posted some Xhtml problems in the cute editor. Adam was good to answer me that they are going to look at the issues, but still no new version of the cute editor is released.
These problems are due to Cute using the SgmlReader provided at GotDotNet.
Until Cute come out with good Xhtml parser it is best to use
Html Agility Pack. It fixes these problems.
http://blogs.vizibility.net/sdobrev