Reading another post I found that it looks like the text is being saved only onblur with the editor .. unless it's called, it wont save to a hidden field. So with that said, I found a killfocus function that does the trick that forces the focus to be removed. The new code looks like this.
function insertMe(textToInsert) {
//get editor
var editor1 = document.getElementById('<%= editor.ClientID %>');
//paste replace text in editor
editor1.PasteHTML(textToInsert);
//kill the focus
killFocus(editor1);
}
function killFocus(refElement)
{
var input = refElement.ownerDocument.createElement("input");
input.type = "text";
refElement.parentNode.appendChild(input);
input.focus();
input.parentNode.removeChild(input);
};