Additionally on IE8 and IE7 if I paste the following (between the lines) from notepad into your Word-like Spelling demo:

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International press experts commented that the tactical significance of the SCUD launches is that they all landed in the Sea of Japan close to each other signifying improved accuracy.  (The missile system is 60 years old as a Soviet system. North Korea has had Scuds for about 30 years. Presumably even the North Korean engineers have worked out any bugs in their versions of the system.)  One news outlet described them as a “salvo.” 

The North has not demonstrated the capability to fire multiple missiles nearly simultaneously, i.e., in a salvo. That is not as easy as it might seem. For example, an analysis of China’s short range ballistic missile threat to Taiwan found that an effective ballistic missile attack would require 100 missiles with conventional explosive warheads to be fired in at least 8 to 10 salvos.

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I get the following (between the lines) HTML (</P> after the first two characters and <P style... at the bottom!):

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In</P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px">ternational press experts commented that the tactical significance of the SCUD launches is that they all landed in the Sea of Japan close to each other signifying improved accuracy.&nbsp; (The missile system is 60 years old as a Soviet system. North Korea has had Scuds for about 30 years. Presumably even the North Korean engineers have worked out any bugs in their versions of the system.)&nbsp; One news outlet described them as a “salvo.”&nbsp; </P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px">The North has not demonstrated the capability to fire multiple missiles nearly simultaneously, i.e., in a salvo. That is not as easy as it might seem. For example, an analysis of China's short range ballistic missile threat to Taiwan found that an effective ballistic missile attack would require 100 missiles with conventional explosive warheads to be fired in at least 8 to 10 salvos. <BR></P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px">

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I think I've got to the bottom of the issue of the pasted text being corrupted when spell as you type is enabled in the toolbar.

There are two Paste event handlers:

UltimateSpell.ayt.js adds the following event handler:

   AddEventHandler(usd2v.body, 'paste', function(usd5u)...

Normally the UltimateSpell one is added first followed by the UltimateEditor one. When a user pastes into UltimateEditor the Spell As You Type is paused, the text is updated and then Spell As You Type is restarted.

However when the page is more complicated (e.g. AJAX toolkit modal popups, JQuery.UI, etc) the order of the event handlers can get messed up and the UltimateEditor event handler gets added first followed by the UltimateSpell one. When a user pastes into UltimateEditor a Spell Check is initiated before the Spell As You Type is paused, when the paste operation is completed SpellAsYouType is restarted and seems to process both the Spell Check responses from it's own spell check request and those that were fired off by the earlier spell check (before the pause).

Therefore, depending on performance the first one or two chunks of text that are sent to the spell checking web services are sent and received twice and this means that any spelling mistakes are inserted in both the correct place and further down the document.