Incorrect merge - Lines missing inside conflict markers

I have been experiencing an incorrect merge in some circumstances - lines are missing inside the conflict markers, such that chosing entirely one branch of the conflict markers produces code with missing parts.

Here is a reproducer:

First, a sample branch (lp:~maxb/bzr/odd-merge-reproducer):

maxb@z61p:~/wc/bzr/mctest/trunk$ bzr log --line
3: Max Bowsher 2010-08-06 Eliminate tab character.
2: Max Bowsher 2010-08-06 Drop RejectedException.
1: Max Bowsher 2010-08-06 Base.

r1 adds a file

r2 looks like this:

maxb@z61p:~/wc/bzr/mctest/trunk$ bzr di -c 2
=== modified file 'MergeIssue.java'
--- MergeIssue.java 2010-08-06 00:53:13 +0000
+++ MergeIssue.java 2010-08-06 00:54:24 +0000
@@ -3,7 +3,7 @@
 public class MergeIssue extends BaseClass {

     @Override
- public void filterDown(Message msg, Resources res) throws RejectedException, BreakoutException {
+ public void filterDown(Message msg, Resources res) throws BreakoutException {
             if(msg.getFlag(MessageFlag.SEEN)) { /* Allow msg through if we've already processed it */
                 return;
             }

r3 looks like this (it changes a single tab character into four spaces):
=== modified file 'MergeIssue.java'
--- MergeIssue.java 2010-08-06 00:54:24 +0000
+++ MergeIssue.java 2010-08-06 00:55:28 +0000
@@ -4,7 +4,7 @@

     @Override
     public void filterDown(Message msg, Resources res) throws BreakoutException {
- if(msg.getFlag(MessageFlag.SEEN)) { /* Allow msg through if we've already processed it */
+ if(msg.getFlag(MessageFlag.SEEN)) { /* Allow msg through if we've already processed it */
                 return;
             }

Now, the merge I'm doing is to branch r1 and then to try to cherrypick
r3 on top of that:

maxb@z61p:~/wc/bzr/mctest$ bzr branch -r 1 trunk cpbranch
Branched 1 revision(s).
maxb@z61p:~/wc/bzr/mctest$ cd cpbranch/
maxb@z61p:~/wc/bzr/mctest/cpbranch$ bzr merge -c 3 ../trunk
 M MergeIssue.java
Text conflict in MergeIssue.java
1 conflicts encountered.

Now, the conflict is expected. What's wrong, is that the conflict
markers look like this:

public class MergeIssue extends BaseClass {

    @Override
<<<<<<< TREE
    public void filterDown(Message msg, Resources res) throws RejectedException, BreakoutException {
            if(msg.getFlag(MessageFlag.SEEN)) { /* Allow msg through if we've already processed it */
||||||| BASE-REVISION
            if(msg.getFlag(MessageFlag.SEEN)) { /* Allow msg through if we've already processed it */
=======
            if(msg.getFlag(MessageFlag.SEEN)) { /* Allow msg through if we've already processed it */
>>>>>>> MERGE-SOURCE
                return;
            }

*Observe that if I delete the 'TREE' section in its entirety and keep the 'MERGE-SOURCE' or 'BASE-REVISION' section in its entirety, there is a line missing from
the result!*