I hate how this board formats things, but i entered that wrong..
$strText = "
this is some text
bullet one
bullet two
*bullet three
more text";
$strNew = preg_replace("/\s*\s(.+)$/m", "<li>\1</li>", $strText);
print $strNew;
print preg_replace("/<li>(.+?)<\/li>/", "* \1", $strNew);