One quick question is if you are converting the files to .kepub when sending them to your ereader. There have been some glitches with the KoboTouchExtended driver. Davidfor did create a test KTE driver which tried to fix the issues. Have you tried that one? See
message #2106 in the KTE driver forum for the file.
Edit: I packaged the css and xhtml file and send them to my Forma as an epub and as a kepub generated using kepubify. Neither showed any extra line breaks.