Apply source formatting removes all my blank lines

It' broken as far as I can see, it should be possible.

You should be able to put a .jsbeautify file in your project root folder with something like below ... I'd say report a bug here

{
  "preserve_newlines": true,
  "max_preserve_newlines": 5,
}

No you are NOT alone. Sometimes set line height in the editor is enough but I dont know if DW has that option. At other times the code IS more readable and managable if you seperate it into chunks using some line breaks. Do I care about minifying any file before publisbing, absolutely not as my code is streamlined, unlike many developers code who use 101+ links to external usually massively bloated css and javascript files. Yes, they certainly do need to minify their bloated workflow files because they are very, very bad developers, good devlopers dont need to.

Only one person on planet Earth cares about code formatting -- you, the coder.   If indents and line breaks Before, Inside and After tags are not sufficient, don't use Auto Formatting.

According to Google...

You should minify your HTML, CSS, and JavaScript resources before transfering to your production server:

• To minify HTML, try HTMLMinifier
• To minify CSS, try CSSNano and csso.
• To minify JavaScript, try UglifyJS. The Closure Compiler is also very effective. You can create a build process that uses these tools to minify and rename the development files and save them to a production directory.