Textilize() Not Doing What I Expect

I have a similar issue using 3.0.4. If I have something like:

h1. This is a header

<p>
This is a paragraph
</p>

It includes "This is a paragraph" as part of the header.

If I don't have the CR after the word "header", it works ok. i.e.

h1. This is a header<p>This is a paragraph</p>