But the last question is why the XHTML acts different for DIV elements than the HTML 4.0 transitional documents? This occurs in both browsers and I'm not sure why the change.
I'm not sure about your specific example, but there are a lot of little differences between XHTML and HTML 4.x in the obscure corners of the language. This is not always because of differences in the standards. Both Microsoft and the Mozilla foundation took XHTMl as a chance to fix some long standing bugs in their rendering that they didn't fix previously because it would break existing pages.
Jay