I found the problem.
I've never tried Sigil before.
I opened the file, set to Code View and found that:
<p class="calibre1"> </p>
Is between each paragraph.
So that's what is causing the spaces.
I globally deleted that line and hallelujah! it worked!
Thanks for the tip!
Is there a way for Calibre to globally delete this?
Sigil is great but it would be nice for Calibre to do it in one step.