There is clearly a problem with paragraph behaviour. I think the problem is that the editor is not WYSIWYG - therefore as I am typing, if I want a new paragraph then I do this:
... I press <enter> twice. Why twice? Because if I do it only once then I only get a new line like this:
But the trouble is that when the text is rendered as HTML a line break gets rendered as a new paragraph, and so the paragraph that we create with the double-enter appears as two paragraphs - hence the huge spacing.