Correct. The existing Notepad is top level Window and menu bar around the existing [edit control](https://msdn.microsoft.com/en-us/library/windows/desktop/aa3...). It has always had the same limitations - eg in way earlier versions of Windows it was limited to 64kb of text.
Addressing the "bug" is not simple - the edit controls behaviour could be changed in which case it could cause existing programs to behave differently, or extra code would have to be written for notepad to do its own text editing. Microsoft takes backwards compatibility very seriously.
Adding new features to an existing Windows control, particularly one that has existed since the dawn of time, is a much bigger deal than adding to a simple utility. The last time that happened they added a whole new control, the Rich Edit.
You just add a new mode to the control that enables the new behaviour. Existing programs using it would work fine.