I have the same issue. If I look at the note in which I lost the line breaks in the Android app, I see the linebreaks replaces with escaped html tas <br>. In the web version the literal html tag is displayed in the text instead of the line break. So it seems in the web application all html tags are escaped, including line breaks.
Bug
Wherever I entered two line breaks, one of each pair is lost.
Three line breaks, instead of two, at the end of each paragraph.
One in three seems to be lost by Diigo, the end result of the loss is proper spacing between paragraphs. Example: http://diigo.com/0bglj
This workaround is far from ideal.
Maybe the losses occur only when text is pasted (not typed within the note).