I can reproduce similar results with M-x shell on GNU/Linux following
your description (terminating each multi-line with C-j is crusial!!)
It looks like redisplay fails to "delete to end of line" when lines
have mouse face.
Is it really a bug in Emacs, or is this just a matter of how to
implement output of CR into the comint buffer?
If it is a real bug, can you fix it?
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