I was working on something similar to this (sorry, no showcase). There's a jQuery extension included for working with contentEditable text selections and formatting text with tags. I think it does a better job with overlapping tags and it merges anchor tags with same hrefs correctly. It does not work on IE < 9 (I think IE9 supports the gecko contentEditable api). You might find the code useful .
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I was working on something similar to this (sorry, no showcase). There's a jQuery extension included for working with contentEditable text selections and formatting text with tags. I think it does a better job with overlapping tags and it merges anchor tags with same hrefs correctly. It does not work on IE < 9 (I think IE9 supports the gecko contentEditable api). You might find the code useful .
Link to jQuery extensions: https://github.com/skid/wimp/blob/master/js/jq-extensions.js