Windows file compare (FC) spurious differences

Question

I'm getting differences like this:

    a.txt
        Betty Davis
        Cathy Edwards
    b.txt
        Betty Davis
        Cathy Edwards

There are only two lines listed in the diff (which doesn't make sense). No CR/LF/Newline funnies. The difference just moves down if I delete lines. Same problem on Win7 and Win2K. The difference seems to go away if I remove all empty lines from the files. The empty lines are correctly terminiated too. Using /C /W (ignore case, ignore whitespace)

Has anyone seen this before? What am I doing wrong? How can I fix it?

There are real diffs in the file -missing, extra, or re-spelled names- but the files are byte-for-byte identical at the listed diff.