I built an in page editor like this a few years ago. I took a completely different approach however. I used jQuery to parse the entire page as XML and the used some dom navigation to work out path locations to the node I was on. There are jQuery libraries which will select nodes via xpath queries.

Then with some string functions I managed to break each node down into text runs (just wrapping spans around text blocks) so that I could apply styles to certain segments. Preserved the whole document in valid XHTML.

Just food for thought if you feel like making the editing functions even more granular.