Uploaded version 1.1.2 of Markdown.

This extension doesn't allow the usage of inline HTML, while Markdown should. HTML tags are being parsed as plain text. Is there a way to fix this?

Yes, HTML is stripped by the extension, for security purposes. I believe the ideal setup would be to chain this formatter with the Kses formatter so that the post passes through them both.

You'd have to replace line 18 ($String = $this->ProtectString($String);) with some other function that strips out potentially harmful HTML.

I'd recommend copying kses.php inside the markdown folder, then add include('kses.php'); just after the dictionary definition, and change line 18 to be $string = kses($String, array());

This would also give you some kind of tag policy, where you could put a list of HTML tags and attributes you want to allow in the array if Kses blocks them.