BuddyPress.org

You’ve probably already tried removing and re-adding the Text widget, right?

The default text widget should always work… but you should check out the WordPress forums to see if anyone has a similar problem, since it’s more of a WP issue than a BP thing.

Do any other tags work besides P and BR in the Text widget?

One other thing to note is if you have any filtering plugins activated, that could affect the widget output, but it’s highly unlikely.