There is already a converter for Project Gutenberg texts, it's called GutenMark. It takes the plain txt files and spits them out into html, the paragraphs are formatted correctly and certain things like chapter headings are given a formatted heading to make the text stand out from the paragraph text.
This pretty much will only work well on Gutenberg texts because that was what the program was originally written in mind for.
Maybe I just don't understand what the original poster was getting at?
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