Interesting.
That's always the way I thought it should be done, with a separation of display and structure.
I used to work with a developer who maintained and actually made a decent chunk of change licensing out a very popular rich text editor developed before ContentEditable was even a twinkle in the browsers eyes. We used it pretty heavily within the company as well.
Knowing first hand the horrible feats of iframe content string manipulation that had to be done to make an RTE work in Netscape and IE5.5, ContentEditable seemed like a DREAM.
Ends up there's still a demo up for it, and it almost entirely still works!