This was briefly mentioned at Comment #27, Bug #6200, but the issues appear to be essentially unrelated, so I'm filing this as a separate bug.
Working examples of this problem are well-documented at http://en.wikipedia.org/wiki/Template:Ins
The problem affects both manual and templated use of blockquote. While bug 6200 #27 proposes use of div inside blockquote to resolve this, I think it is actually more semantically proper to work around it the way that Template:Ins does (using span), until it is genuinely fixed in the software.
Failure to fix this means disuse of semantic markup tags in favor of ones with no semantic meaning at all (u and s), which are ignored by screen readers, thus making this an accessibility issue: "Foo <del>bar</del> <ins>baz</ins> quux" will be read by screen reader software in most cases as "foo bar baz quux", which is obviously wrong.