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I have found that I get the best results in Calibre if I convert from HTML. I too had plain text files and here is what I have found words well:
1) Cut and paste all the text from the text document into a word document
2) Save it as HTML
3) Open it in Firefox and cut all text again (this removes any funky formatting from Word)
4) Paste this into a plain HTML document (I use the free program Kompozer) and save
5) Open with free program Test Wrangler; search for <br><br><br> and replace with <br><br> (this removes extra line breaks between paragraphs
6) Save and import into Calibre; converts well to any format at this point
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