I looked around the Smarty source code, and this looks unfixable. There are 2 problems -default_modifiers only handles one level of arrays. This could probably be fixed -default_modifiers are applied both in the foreach from-argument, and when the text is actually inserted ({$para.text}). So everything would be double-escaped. This could not be fixed without potentially breaking current users relying on the current behavior.
Regards, Thue