Until then, my money's on "white-space: pre;" from iPub creating swathes of unnecessary whitespace.
I have no idea what "paragraph mark" might mean. If it's not a pilcrow, then perhaps it's the xml entity equivalents of the angle brackets. You know... Tidy Gone Wild when trying its best to fix some particularly badly formed html? Leaving what renders as html code in book view?
Just guessing though. I'm thinking our OP has already moved on to the next item on their To Do list.