I put this version together for you very quickly.
http://www.mediafire.com/?wsdtv5a4p509add
I ran a regular expression to remove everything between the curly brackets { }, then combined the paragraphs which started with lowercase letters, and added p tags around everything. I also added blockquotes around the two "poems".
While not perfect, this HTML file should give you a much better output in calibre.
As a side note, the original "STML" file seemed to just be some sort of markup in order to help transcribe texts. Most likely to make it easier to do side by side comparisons between the original/transcribed pages/paragraphs.