What it's actually outputting is "<br />\n"

<? $str = "One\nTwo"; echo nl2br($str); ?>

Yields

One<br />
Two

This is consistent with its old behavior, which was to output "<br>\n"

While it might not strictly be the expected behavior, this seems fine to me.  The newline won't affect how a browser renders the string, since it's just whitespace to be ignored.