My apologies. It's not a mobi problem. It seems to be a problem with converting from text, whether to mobi or epub, or any other format, and the problem follows the file, so going txt -> epub -> mobi doesn't help.
In the Calibre viewer, the problem is seen as every paragraph being on one line, with no wrapping of text (except at dashes). I've tried looking at the exploded epub to find differences between the same file converted from txt, and one where I pasted the text into an rtf file, then converted it (which worked properly), but couldn't find any differences that solved the issue.
When I hit port next, I'll upload the test files if you want me to. In the meantime, is there anything you can suggest?