virtous on "WYSIWYG behavior and text processing"

Hey all!

I'm trying to change the way that the rich text editor processes posts.
If I write the following inside the visual tab:

Hi,

This is a paragraph.
And this is a line break inside the paragraph.

This is a new paragraph.

A few things come to notice.
First of all, if I inspect the rich editor I can see that each line is in its own paragraph, like below:

<p>Hi,</p>
<p>&nbsp</p>
<p>This is a post.</p>
<p>And this is a line break in the same paragraph.</p>
<p>&nbsp</p>
<p>This is a new paragraph.</p>

Also, if I head over to the HTML/text tab, I see this:

Hi,

&nbsp 

This is a post.

And this is a line break in the same paragraph.

&nbsp 

This is a new paragraph.

Finally, if I look on the actual blog page itself. It has trimmed all the white lines and wrapped each sentence in a paragraph tag:

<p>Hi,</p>
<p>&nbsp</p>
<p>This is a post.</p>
<p>And this is a line break in the same paragraph.</p>
<p>&nbsp</p>
<p>This is a new paragraph.</p>

I have to use the wpautop() function to get the same result on the blog page as inside the wysiwyg editor.

However this is not the issue here. The thing I would like to know is where and how I can change the way that WordPress processes post content before it gets inserted to the database.

Any help is appreciated :-)

Virt