If a document is in designMode I don't think that events should be executed, as they will make the editing harder or even raise errors if they depend on scripts that aren't loaded while the document is being edited.
Tested in XP with r25792
IE executes them.
Firefox doesn't execute.
Opera does execute.
Test case following to show that executing events can be annoying.
If you want to test how they can raise errors, copy some text from MS Word with comments and paste them, the functions called on the onmouseover and onmouseout events aren't available and they will generate errors in the JS console.
Created attachment 16447 [details]
This is a simple example of trying to edit a document with an onclick event.
I'm not sure that I would consider this a bug. What if I wanted clicking on the link in your example to display a widget where I could configure the text and target of the hyperlink, for example.
This message might give a much better explanation, as well as showing that the current behavior doesn't match the HTML5 spec (that might need some refinement).
You're right, that is much clearer about the specific issue. It sounds like the Firefox behaviour is what is desirable here. Event handlers added on the document from outside should be respected, those defined within the document itself are ignored.
HTML5 now requires this, though it gets the same effect using quite a different definition: