Yes, this happens for us as well.  Our styles are removed; extra sets of <p></p> tags are inserted; text is spaced out; and paragraphs or headings often move to the bottom of the page.  Particularly troublesome around unordered lists and tables. This does not just happen when you paste text in (even cleaned up text).   I can't expect my content users to edit in source code. The purpose of the html module is to let them edit their stuff -- they can't do it without adding a million spaces -- or worse

Anyone have a solution or even an explanation for why this is happening?

It makes the whole process of training a client how to use the editor very painful..

all very nice, this discussion about what is/should be standard, but it doesn't really HELP ME does it....

We get a lot of complaints from our customers about the <p> tags, it is especially irritating in the FAQ module.
Using CSS, or <br /> or <div /> is also very nice, but it is not a structural solution, just a workaround.

I think you shoud see this from a customers perspective.
Customers often do not know a lot about HTML, and they don't want to know.
They just want the product to work.

How am I supposed to explain that something simple as a <p> tag causes so much problems.

I think the DNN team should fix this in some way.