I played around with the plugin a bit, and ctrl-z misbehaves a lot. Sometimes it jumps the cursor to the start (without undoing anything), sometimes it undoes the whole sentence, sometimes just one character, sometimes in chunks. Now I understand why sometimes when I try to ctrl-z a minor mistake it completely erases my whole post 
It's fine though, I'll just be careful with ctrl-z. Don't worry about that issue.
I figured out how things work (what I showed in the video). I guess I just expected spacebar to "exit" out of the formatted tags, like the arrow keys.
I'm not a huge fan of how the system works in general. It could be related to ctrl-z's weird behaviour. Anyway, I'm just thinking out loud a bit, this doesn't matter that much, and I can easily work around it.

I'm not a web developer, so this might just be a case of industry standard practices being a bit foreign to me.
I'll let you know if I encounter any issues more directly related to the lookup itself. Pretty sure the backspace issue was also ctrl-z related, so I won't bother with that one.
Edit: Yeah, the ctrl-z weirdness is 100% related to the cursor position and the tags.
Update 1: Had some problems with linking in this example. Wasn't working up top (no menu pop-up).

Update 2: Another issue when trying to link sentences using the old system. I get that it's not very elegant, but it does work :D
The new lookup dialogue keeps popping up. I understand why it does it, I'm just pointing it out. Shouldn't be an issue after you add sentences to the lookup.

Update 3: Doesn't open the dictionary (error)

The error:
