WordPress 2.0 has a new “rich” visual HTML editor which generate HTML markup directly. This editor should work fine alongside Markdown, but Markdown-formatted text won’t work in this new editor. You can tell the rich editor is active when there are icons for bold, italic and other functions above the text editor. To edit Markdown text, you need to deactivate the rich editor. Here’s how.
There are two places you can deactivate the editor. Each user can activate or deactivate it from the “User” section of the administration interface: uncheck checkbox “Use the visual rich editor when writing” at the bottom of the page. You can deactivate the rich editor for new users from Option > Writing > “Users should use the visual rich editor by default” checkbox.
If you want to use the rich editor again, no problem, you can reactivate it and use it at anytime. But then you should make sure the rich editor is disabled before editing a Markdown-formatted post.
Also note that WordPress 2.0 official distribution does no longer include the Markdown plugin. You’ll have to get it from the PHP Markdown project page.