the TextArea does add \r\n or \n style linebreaks... you just have to replace those with <br> or <p> style linebreaks, like this:
$text = "Test post\r\nTest post";
// first check for multiline breaks, and replace those with <p> tags:
$text = ereg_replace("\r\n\r\n", "<p>", $text);
// then, for good measure check for multiline breaks without a carraige (sp?) return:
$text = ereg_replace("\n\n", "<p>", $text);
// then check for single line breaks:
$text = ereg_replace("\r\n", "<br>", $text);
// and then the carraigeless brethren:
$text = ereg_replace("\n", "<br>", $text);
You may want to try using preg_replace instead though, since its supposed to be faster. Also, when you are taking this data and putting it back into a text box you'll have to do this all in reverse!