I am having this problem, too, but the issue isn't my email client, it's the content of the message that WP-EMail is sending. What is happening is that the email message is constructed correctly, and HTML is successfully used in the message, _except_ for the excerpt of the post that is included. The excerpt has all of it's HTML entities decoded. Here's a sample from one message (I am cutting/pasting from the raw message received at Gmail):
<p><strong>Reductions in indirect spending will impact people, reshape services</strong><br />Posted By wtmurph On November 7, 2007 (2:53 pm) In <a href="https://www-irn.sandia.gov/newscenter/interactive/index.php/category/labs-transformation/" title="View all posts in Labs transformation" rel="category tag">Labs transformation</a></p><p>The next several years will see significant increases in costs at Sandia, says Joe Polito, who heads the Labs&#8217; Integrated Enabling Services Strategic Management Unit (IES SMU). &#8220;Over the next five years,&#8221; he says
You can see the HTML tags are correct at the start, which is part of the template. But the excerpt itself has been encoded, which I believe is not the right behavior.
I am using WordPress 2.2.2, with WP-EMail 2.11. The "E-Mail Content Type" option is set to HTML, and the "Method Used To Send E-Mail" option is set to PHP. The WP-EMail templates are all the defaults.
This issue appears with the default theme, and with all other plug-ins disabled.