I'm honored to get a reply from the author himself! Thanks for your fantastic work.
Whatever the technical issues, it seems to me text-indent: 5% shouldn't result in a huge 50% indent. Since the main reason for epub to mobi conversion is the kindle, and since the kindle is not exactly a fringe product, I think it's worthwhile to at least have toggleable options to fix these special cases. Think of all the hassles you will save people from having to manually edit epubs.