I had a similar problem. I expect users to enter html or xml in my text area and I also wanted to retain line breaks when rendering a page. The solution was quite simple
The html <pre> tag retained the line breaks and html_escape allowed me to render the html. This is probably a rather large security hole but I'm working on an internally facing application so it's okay. The user can now enter whatever they want in the textarea and it's rendered correctly when I display the data on another page.
When I render the text, it now looks like...
There should be a line break here! <br> <hr>