I found a nice, free and very basic in-browser WYSIWYG editor at devArticles.com. The tutorial "Building a WYSIWYG HTML Editor Part 1/2" is very interesting but the nice thing is they provide the finished code. Just grab the "Support Material" at the bottom of the last page. It is all done with JavaScript & CSS. Plus it supports "drag-and-drop" from MS Word-ish programs.
There also exists a more robust version called EditWorks Pro, available for php or asp for a mere $19.99.
At the moment, I haven't had a chance to figure out how to merge this with the MT entry screen, but my Spider Sense tells me it will be pretty easy. I am more of an "Idea" person anyway (just ask goddessJenn about my crazy suggestions).
You could probably also strip some features out and allow it to be used in the comment entry form.
In "Part 2/2" article author Mitchell Harper details the method he uses to process the form data.
If anyone is able to make use of this tool, please post a note about how you implemented the editor.
Enjoy!