Anyone else having the same problem and anyone knows the solution to this problem?
Philadelphia Biblical University
This is a reported bug, and is being fixed. Expect to see a vastly improved Moodle chat client within the next few weeks.
Oh...can we have a hint of what new stuff is coming in the chat?!
In the mean time, you can try this. I had the same problem and this is what Martin suggested...it worked for me...
I needed to add a file to my moodle dir called .htaccess that contained the following info
php_flag magic_quotes_gpc 1
This solved the issue.
Thanks everyone and big thanks to Martin.