Typo 4.1.1 using rails 1.2.6 (as well as 1.2.3, updated typo's rails to 1.2.6 via rake)

Using the "Visual Editor" You are unable to use <typo:code> or similar things such as <a href= or <img src, as well as other things such as embed (youtube links) and other various links.

If you switch to the Simple Editor, it works. Just not with the Visual Editor, it clearly thinks the <typo:code> is meant to be text and encodes it so the typo engine cannot see it to parse it properly, as well as the browser.