Where we are now
I think the current situation is this:
Moodle ships with two HTML editor components: HTMLarea, which is enabled by default, and TinyMCE, which you can choose to use instead on the admin screens. lib/editorlib.php supports this, and makes different types of editors plug-in-able.
The bad news is that HTMLarea has been 'discontinued'. That is, it is no longer available for download, or meing actively developed. So when it comes to bugs like MDL-7043, we are on our own.
There are various technical reasons stopping us from switching to TinyMCE by default. I'm not entirely sure, but I think the issue might be that despite the name, TinyMCE is huge, and leads to slow download times.
Also, I think that we have done some Moodle-specific customisations to HTMLarea, for example making it possible to choose course files in the insert image dialogue box. This is good for Moodlers, but makes it harder for us to switch to another editor.
What options are available
Trying to find out what had happened to HTMLarea, I discovered that http://www.htmlarea.com/ is now a site that lists other HTML editor components, most of which are commercial, however, there are three leading open-source options:
TinyMCE is still under active development (last release 14th May 2007), and gets a rating of 8.92 from 117 votes. LGPL licensed
Xinha: thanks to the magic of open source, when the original makers discontinued HTMLarea, the community stepped in and continiued development under this new name (Xinha is not HTMLarea). Latest release 16th May 2007. It gets a rating of 8.85 from 80 votes. It is licensed under the old HTMLarea license, which is a variant of the BSD licence.
FCK Editor: Also actively developed with the most recent release 14th June 2007. Gets a rating of 9.07 from 253 votes. Available under of choice of GPL, LGPL or MPL licences. I once talked to some people who had successfully got FCK editor working with moodle, and they said it was easy.
These three options all only support Firefox and IE. They all want to extend support to Safari and Opera, but the FCK site has a nice explanation why that is not really possible, and the constructive steps being taken to change the situation: http://dev.fckeditor.net/wiki/Compatibility
What we should do next
I don't think it is a good idea for us to continue using a discontinued editor component, so what needs to be done:
First, I think we need to work out exactly what Moodle-specific changes were made the the versions of HTMLarea and TinyMCE that are currenly in our code base. That will let us know how much work needs to be done to integrate another editor into Moodle in the same way.
Then, I think we need to look at integrating the latest versions of one of the above editors. Ideally, we would integrate all three, then do a side-by-side comarison. Ideally, we would end up with only one editor in Moodle core. As I see it, we just want one that works, and once we have chosen one, it is silly to spend effort providing long-term support for more than one. However, integration with other editors could be moved to contrib, so people who really want to change can download another one.
I am afraid I am absolutely not volunteering to do any of this. Well, I might have a quick look at Xinha to see if upgrading from HTMLarea to that is the easiest way to fix MDL-7043. But I just thought that having done the above research, I should document it somewhere.