This seems to be MobiPocket's fault, although I suppose it is up to Penguin to work around crappy conversions by Mobipocket.
The LIT version is perfectly ok. It adds a bit of extra space between paragraphs, but nothing excessive. The CSS is:
Code:
.tx {
font-size: small;
text-align: justify;
text-indent: 1em;
margin-top: 0.5em;
margin-bottom: 0.5em;
}
The first screenshot is from Microsoft Reader (i.e. the LIT version) on a PC and the 2nd is from Windows MobiPocket Reader on a sample from the Kindle Store (i.e. the MOBI version). The 3rd screenshot is the LIT converted to MOBI using Calibre, it looks similar to the original LIT. The 4th is the LIT converted to MOBI using MobiPocket Creator. It is identical to the original MOBI, with very wide spacing between paragraphs.
So Penguin is using MobiPocket's Creator or mobigen to convert from OEB to MOBI, but the conversion does not work well.