Question 1: As you're probably aware, whitespace is generally not significant in HTML. Depending what you're really trying to do, you may have several options; you could use pre, but you'd be stuck with a monospace font; if just text is entered and not markup for tables or something like that, you can replace line termination characters with br elements (see nl2br()). Tabs are not quite so straightforward...you could try replacing those with several nbsp each.
Question 2: PHP is escaping the quotes, a feature called, in your case, "magic_quotes_gpc". You can use stripslashes() to revert the string to it's original state, or better yet if you don't want to use the feature, which is intended to be a convenience for DB operations, at all, you can turn it off in the PHP configuration file, or perhaps with an .htaccess file or at runtime.
