OK, this is what I did with a txt file that I was having a lot of trouble with: I opened it in MS Word and saved it as rtf. Then with the rtf file I did the following (per Bob Russell's advice in a separate post)
To do that, I use MS Word mass replace (all occurances) as follows:
*) Mass replace ^p with <$$> (anything that's a distinct pattern works)
*) Mass replace <$$><$$> with ^p (to remove the double paragraph marks)
*) Mass replace <$$> with a space, to allow text to flow naturally
*) Mass replace ^l^l with ^l to remove double line breaks.
Saved as rtf and converted with Calibre. Perfect.
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