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In my view, strict line breaks should only affect the flow of paragraphs, not change how callouts render.
I get where you are coming from, but I honestly perceive this to be a bug rather than a Feature Request.
When you look at how callouts are displayed in Source Mode, the visual differentiation between the first line and the second implicates they carry different meaning. When you switch to Reading Mode, however, they are “merged” into one element. So regarding the visual presentation, two elements became one element.
Strict Line Breaks should affect only the flow of the paragraphs, but not the meaning of content. When you have a folding callout with two blocks, it becomes even worse, since in one case, there is content hidden by the fold, in the other case, there is nothing to unfold.
Even more, when you copypaste the example callout from the docs and have Strict Line Breaks enabled, it will not render the same way as in the docs, even in the help vault.
Another problem that arises from Strict Line Breaks affecting callout-rendering is that it also reduces portability of the notes. Before the callout update, I could simply copypaste a note to share it with someone else, and only the visual presentation changes. But when I have callouts in my notes, I have to tell the other person to use the same Strict Line Breaks setting as me to have the callouts render properly.
All in all, I would ask you to maybe re-consider and regard this post as a bug report and not a feature request.
I agree that Strict Line Breaks should not affect callout titles. Here’s why.
# Title
I am some content.
> [!note] Title
> I am some content.
I consider the semantic meaning of callout titles to be similar to headings, they both give the reader an idea of what content is to follow. Yet headings do not respect the Strict Line Breaks rule and callout titles do.