I have posted a working version here: http://jsfiddle.net/JV2qW/2/
I have a textarea that updates (on keyup()) a div with the text that is being entered. Everything is working as it should, except the line breaks are not being recognized. 
the html:
<p>enter text</p>
<textarea id='text'></textarea>
<div id='target'></div>
and the jquery:
$('#text').keyup(function(){
      var keyed = $(this).val();
      $("#target").html(keyed);
 });
Any thoughts on how to get the \n translated to <br/> or <p> tags?
many thanks.