This one is a relatively recent development, only introduced in 3.9. I don’t love it any more than you do, not least (though not only) because it no longer preserves formatting when you use Insert Quote in an Annotation. (In fairness, this is a consequence of and trade-off with the deep-linking functionality that was introduced as part of the same version, and it’s easily worked around by the small extra step of copying and pasting the original selected text over it.) But yes, it’s evidently supposed to be quasi-WYSIWYG, and possibly illustrates the hazards of trying to please the whitespace enthusiasts – of whom I’m pretty much the exact opposite, though I don’t think anyone was clamouring for a redesign of the blockquote display.