I think this has something to do with the new refresh code.  Type this into
your zsh running in a standard xterm:

zsh% function fourlines {
> echo 1
> echo 2
> echo 3
> echo 4
> }
zsh%

Now call it back with C-p so you see:

zsh% function fourlines {
echo 1
echo 2
echo 3
echo 4
}

Now cut everything from "function" through "}" and paste it into an editor.
You get something like the attached (look at the text in a window that
either does NOT autowrap or is NOT 80 columns wide).  Note that there is a
remarkable shortage of newline characters in the pasted text.

-- 
Bart Schaefer                             Brass Lantern Enterprises
http://www.well.com/user/barts            http://www.nbn.com/people/lantern

New male in /home/schaefer:
>N  2 Justin William Schaefer  Sat May 11 03:43  53/4040  "Happy Birthday"