I don't have any definitive answers for you, but this is the simple css I've been using lately for both my Kobos:
Code:
.dropcap{
float:left;
font-size:3em;
font-weight:bold;
line-height:0.8em;
margin-right:0.05em;
margin-top:-0.1em;
}
The relative vertical positioning does seem to vary depending on which font I select in the font menu. I used to see the same thing on my Sony readers.
I'd be surprised if your setting of
font-family: "Palatino Linotype"; was doing anything unless you have embedded the Palatino font inside the epub and you have also added the necessary @font-face statements to the css.
I normally make the dropcap display in the same font as the rest of the paragraph by not including the
font-family: at all.