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It actually shouldn't even be a matter of what the reader can do to override it. The books shouldn't be formatted that way in the first place -- doing so overrides the creative, editorial, and design decisions that went into the book, and it's not Kobo's place to do that.
Space breaks serve a purpose -- they signal a change of scene, circumstance, time, etc. When space breaks are inserted before every paragraph, the original, intentional space breaks are negated. I've read a couple of ebooks where section breaks were lost because of this.
The default should be to retain proper formatting: no space breaks, indented first line.
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