I've been trying to avoid adding manual line breaks to the text file because in prose, unlike code or poetry, line breaks are presentation, not content.
I suppose I could try to write something that scrapes the text file, adds <p> tags around paragraphs and presents it with some really basic CSS. I don't know how to code, but I might try cobbling something together.
You could alternatively use an online markdown editor (such as http://markdown.pioul.fr/). It'll wrap your paragraphs in <p> tags.
Additionally, since it uses the Markdown syntax, it might give you more than paragraphs if you use more than line breaks. (Have a look at the quick reference for more about the syntax.)
Edit: Didn't see your answer to @kybernetikos. I still think this could help you out. Also note that in HTML (what you'll get by adding <p> tags to your text), whitespace is collapsed (except inside <pre> tags)
Instead of writing a converter yourself you could try to use Markdown on your files without modification and see how well it does. The design goal of Markdown is:
Markdown allows you to write using an easy-to-read,
easy-to-write plain text format, then convert it to
structurally valid XHTML (or HTML).
I suppose I could try to write something that scrapes the text file, adds <p> tags around paragraphs and presents it with some really basic CSS. I don't know how to code, but I might try cobbling something together.