This is way If you want to change new line in TinyMCE with <br/> character :
12345 tinyMCE.init({forced_root_block : false,force_br_newlines : true,force_p_newlines : false});
For the display you can use a simple CSS trick like this on file tiny_mce/themes/advanced/skin/default/content.css :
p {margin:0; padding: 0;}.
See also: Reasons why not to use BR elements for linebreaks
regards..
Love your site man keep up the good work