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Just putting in my two cents worth on Smashword formatting. I used two paragraph returns and a header formatted chapter heading to begin each chapter and had no problems. I think the problem comes with trying to set up the first page of a chapter like a traditional book halfway down the page with lots of paragraph returns. Smashwords does not like that, nor do they like font sizes over 18pt.
I had quotes at the beginning of some chapters. I used spaces between the chapter heading and the quote and centered them in italics with no problems that I could see. Hope this was helpful.
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