execCommand insertHTML breaks stored window.getSelection()

How best to save and restore the selection really depends on what you're doing. For your specific example, where existing text is just having its case transformed, I'd suggest a character index-based approach, such as https://stackoverflow.com/a/5596688/96100 (although that answer requires Rangy, but can be trivially changed not to require it: http://jsfiddle.net/Y8pJ7/8).

For some other cases, a better approach is to use invisible marker elements at the start and end of the selection, which is the approach taken by the selection save/restore module of Rangy (disclosure: I am Rangy's author).

UPDATE 18 June 2012

Rangy now has character offset-based save and restore of selections and ranges via a new TextRange module (demo).