Properly setup the event to account for initial content at the time of the first event binding. Reduce the delay to make it fire as quickly as possible. Remove two unused special events. Formatting.

jquery.textchange.js

/*!
 * jQuery TextChange Plugin
 * http://www.zurb.com/playground/jquery-text-change-custom-event
 *
 * Copyright 2010, ZURB
 * Released under the MIT License
 */
(function ($) {
	$.event.special.textchange = {
		setup: function (data, namespaces) {
			$this = $(this);
			var current = $this[0].contentEditable === 'true' ? $this.html() : $this.val();

			$this.bind('keyup.textchange keydown.textchange keypress.textchange', $.event.special.textchange.handler);
			$this.bind('cut.textchange paste.textchange input.textchange', $.event.special.textchange.delayedHandler);
			$this.data('lastValue', current);
		},
		
		teardown: function (namespaces) {
			$(this).unbind('.textchange');
		},
		
		handler: function (event) {
			$.event.special.textchange.triggerIfChanged($(this));
		},
		
		delayedHandler: function (event) {
			var element = $(this);
			setTimeout(function () {
				$.event.special.textchange.triggerIfChanged(element);
			}, 1);
		},
		
		triggerIfChanged: function (element) {
			var current = element[0].contentEditable === 'true' ? element.html() : element.val();
			if (current !== element.data('lastValue')) {
				element.trigger('textchange', element.data('lastValue'));
				element.data('lastValue', current);
			}
		}
	};
})(jQuery);