Automatic sourse formatting inconsistent

Hi,

I'm trying to learn to automate the most boring parts of my work using
Dreamweaver, one of which is going through plain text and reformatting it so it
has line breaks, paragraphs, headings, etc. I was thrilled to see "Apply Source
Formatting" and can use it to format an entire page according to my
specifications, but when I click "Apply Source Formatting to Selection" it
usually doesn't do anything at all.

When I first started using this feature I discovered that nothing happens if I
have not saved the document first (thanks, Adobe, for not giving me an error
message and leaving me to figure it out). I'm wondering now if there's
something similar going on with applying formatting to the selection: Is there
some special ritual I must perform before using this Command? Do I need to
sacrifice a goat or something?

Furthermore, and this may or may not be a seperate issue, when I use a
keyboard shortcut or "Insert" to automatically put in a <p>, <h1> or other tag,
it ignores my line break settings in one of two ways. First, if I have selected
a few words of a line, it uses no line breaks at all - keeping everything still
on one line. Alternatively, if I select the entire line, then it puts the
opening tag at the beginning of the selected line and the closing tag at the
beginning of the NEXT line, with no additional line breaks. It always does
these two things the same way regardless of my settings in Preferences > Code
Format.

Is there any way I can convince the program that, when I insert a tag, I want
it to format it appropriately? If it won't, then really, it's not much of a
shortcut. But I would settle for just getting it to reliably Apply Soruce
Formatting to Selection!

Thanks!