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In recent firmware there is a problem with the line spacing of the Kobo Nickel font, so if you are using that font then probably best to try a different one.
Another issue is with books that set the base font size smaller than 1em/100%/medium. The smaller the base font size, the wider the line spacing will be. There is a scale fonts option in Calibre that might fix this if you are converting a book.
However the main issue is that Kobo have chosen line spacing values that are simply too large. The scale on the line spacing slider goes from 1.0 to 3.0, but even 1.0 corresponds to a line height of about 1.3em for a base font size of 1em, which is wider than the 1.2em set in most books.
If the line spacing is too wide on the minimum setting and you want it to remain adjustable, then the only real solution is to apply the custom line spacing firmware patch. See the Kobo Patcher thread in the developer's subforum. This patch will let you change the values on the line spacing slider to any set of values you choose.
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