It's a rich text editor, actually. Because of how it works, once data is added, you have to publish before editing.
As to going back to the old editor and file type uploads, only text uploads are allowed. Html uploads were disallowed as they were a direct injection in to the database, which is a huge security risk for any database.
This link tells you how to fix glitches in your chapter data, from before this was added, due to word exported to html.
Without knowing which which word processor you're using, I can't really say what you need to do as far as copy/pasting at this point.
For example, if you use Word or Open Office, you want to use "paste form Word" as the option. This brings up a pop up, you paste the selected text, and all your formatting is retained. This does not read a raw html file for copy/paste.
If you're using WordPad, this link will tell you what else you need to do.
There are some quirks with earlier versions of Word, and Works files don't copy/paste