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The only thing I could think of for the "separate lines will be combined into one long one" is that you never actually hit "enter" or "return" inside of DW.
When you have the file open in DW, each line should be numbered on the left. If you have lots of text on one line (for example a wrapped in a <p> tag) it won’t count the text wrapping as a new line. Did that make sense? Here’s a screen just in case:
My tabs don’t always line up perfectly when viewing source either, I don’t have a solution there for ya.