My colleague ran into this while making a UIWebView based app. Repros in Safari Nightly.
See also: bug 20129 (which has similar symptoms, but is no longer occurring). Possibly bug 55886 too.
It looks like Chrome, Firefox, and Safari all behave differently than expected. See <https://w3c.github.io/editing/contentEditable.html> We should get this behavior standardized before attempting to implement a change in behavior.
I don't think we can ever standardize how the insertion point is rendered since its behavior is platform dependent. Also, there is no way the editing API spec will be standardized anytime soon so I don't think we should gate fixing these bugs on the standardization effort.