First of all, the html tags allowed are limited, whether in a plain text file (.txt) or an html file (.htm, .html). There are NO font formattting options available at this time, including choice of font.
Secondly (for an html file), if you do not strip out all the extra html that is generated by most programs so that ONLY the text formatting tags remain, the upload will generally become garbled at best, at worst it MIGHT display only the first paragraph of a chapter.
Try copy/pasting, and then adding the formatting tags in that window, if nothing else. Let me know how that works.
It would be helpful if I knew WHICH subdomain you're trying to post in, so I can see if the error can be duplicated.