That seems like broken behavior on either the client or ftpd's part then. Quoting from the FTP RFC:

         3.1.1.1.  ASCII TYPE

            This is the default type and must be accepted by all FTP
            implementations.  It is intended primarily for the transfe
+r
            of text files, except when both hosts would find the EBCDI
+C
            type more convenient.

            The sender converts the data from an internal character
            representation to the standard 8-bit NVT-ASCII
            representation (see the Telnet specification).  The receiv
+er
            will convert the data from the standard form to his own
            internal form.

            In accordance with the NVT standard, the <CRLF> sequence
            should be used where necessary to denote the end of a line
            of text.  (See the discussion of file structure at the end
            of the Section on Data Representation and Storage.)

            Using the standard NVT-ASCII representation means that dat
+a
            must be interpreted as 8-bit bytes.

            The Format parameter for ASCII and EBCDIC types is discuss
+ed
            below.
[download]

As that reads, the protocol says in ascii mode you convert to the network line ending (CRLF) when sending and from CRLF to native on receipt. If your client or server's just stripping CR blindly it's not living up to the spec.

I did just now test this with the stock NT 2000 ftp.exe and vsftpd that I had installed on RH9 and it did just strip CRs, so the original post was correct about how things work (I still say it's broken though :).