Sorry for the late reply. Floobits doesn't actually work on the level of cursors. It understands changes in buffers. As you pointed out, we ship around patches and attempt to merge them in sane ways relying on eventual consistency. We also have to keep around the previous state of the buffer (in general).

The benefit of this system is that multiple people can edit the same file at the same time. The downside is that when they interfere with each other, they get garbled text (instead of interleaved).