Most Markdown editors get the two-trailing-space rule wrong in their syntax highlighting, but get it right when actually exporting to HTML. Ulysses gets it wrong everywhere.
[EDIT: @UlyssesApp tweeted to explain that their app does manual line breaks with
SHIFT+Enter, which exports as
<br> in HTML and two trailing spaces in Markdown.]
The correct HTML result for the above snippet is:
<blockquote> <p>This is a block quote<br /> that should<br /> continue to<br /> the next<br /> lines.</p> </blockquote>
Ulysses generates the following incorrect HTML:
<blockquote> <p>This is a block quote </p> </blockquote> <p>that should </p> <p>continue to </p> <p>the next </p> <p>lines.</p>