> Talking of line breaks, why was it decided that <br> should be a tag
> and not an entity, eg: &br; which seems to make more sense to me...

Named entities can only be the equivalent of what you could write using
numeric entities and normal markup.  In HTML and XHTML, they are always
exactly one numeric entity.  Numeric entities represent characters in the
base character set.  Named entities are simple macros.

The character set for the original HTML was ISO 8859/1.  The origal 
meaning of <br> was like .br in troff and \break in TeX, which is not
an unconditional newline, but a request to dump any partial line and 
advance only if it wasn't empty.  There is no ISO 8859/1 character that
has exactly those semantics, and other vertical motion characters were
considered white space and ignored.

There is also a general trend to not use named entities, because they
cannot be handled by a general purpose, but non-validating, XML parser,
and because there are already too many of them in HTML 4.01.