Same issue here too. vhosted site where the “paste from text” and “paste from word” boxes pop up and allow text to be pasted, but the insert button doesn’t insert the text into the post, but simply clears the paste window.
Other functions such as link inserts and such are working fine.
This is happening in IE 7, IE 8, FF 3.5.x and Safari, before and after cache clearing. Of note, this is WP 2.9.2 (same problem under 2.9 and 2.9.1) running a WAMP stack.
Being virtually hosted, I can’t request a restart of apache. Also, there may be an issue with the open_basedir parameter as it’ causing errors on the theme editor page. Data point if anyone else runs into this problem.
