Line break converter does not handle contents of li elements (lists) correctly

Line break converter (in filter.module) does not handle contents of li elements (lists) correctly. The result is invalid html, due to broken p elements.

<ol>
<li>Ok, so isn't this an issue with line break converter anyway?</li>
<li>What if I have just an ordinary list

with line breaks in between?</li>
<li>It's not gonna work then either
is it?</li>
</ol>

Produces the following:

<ol>
<li>Ok, so isn't this an issue with line break converter anyway?</li>
<li>What if I have this kind of list
<p>with line breaks in between?</li>
<li>It's not gonna work then either<br />

is it?</li>
</ol>

This example from currently running drupal.org, as you can see:

1. Ok, so isn't this an issue with line break converter anyway?
2. What if I have just an ordinary list

   with line breaks in between?

3. It's not gonna work then either
   is it?