It sounds as if the file may have hardcoded line feeds in it. Luca (the creator of writer2epub) also has a writer plugin called text cleaner which can be helpful in removing blank lines. Give that a try then run though writer to epub, the file should be a lot better and Sigil can do the tidying up afterwards.
By setting a smaller font in writer you should get a smaller font after running it through writer2epub, or you could modify the css with Sigil to get whatever size you want, experiment with "font-size: xem" where x is the font size, less than 1 is smaller, greater than 1 is larger.
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