Thanks for the response. I'm searching in Code View. Other code find/replace searches work fine.
I downloaded a text editor (TextMate) and it had the very same problem with this search (finding but not replacing), so it doesn't appear to be a Sigil-specific issue.
...works fine in both Sigil and TextMate, so the "(?=\S)" appears to be the problem. I thought perhaps I had the wrong regex code. Is there any other way to add the paragraph tags?