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IIRC you need to turn off justification as well as converting to azw3. There is an option to do that in the look & feel section of the conversion dialog (Text justification: Left align). As far as I could tell some versions of Kindle firmware think that inserting spaces between curly opening quotes and the letters C, K and r is an acceptable technique for justification. I vaguely recall someone saying that turning off justification causes the spaces to disappear.
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