You can create a blockquote element by pressing Tab, although it won't have any special styling. If you want, you could add some CSS in Raw view. I'll look into making a control for this specifically, although IIRC browser support for blockquotes in contenteditable is a bit inconsistent.
Regarding inline styles, I don't remember why, sorry. It might again have been to fix some inconsistency between browsers.
Thanks for the information. FWIW my main issue with inline styles is, my use case would be taking the HTML into another system, and the more pervasive the inline styles are, the more likely they are to override our the desired styling contained in stylesheets produced by that system. They may help your product work better on purely its own terms but they are (IMO) highly suboptimal when HTML leaves your system and travels.
Also, is there a reason you're using inline styles to do italics and bold instead of the specific tags for those things?
(Deleted question you answered downthread.)