The only time I've ever seen this is when someone's uploaded a txt file without the HTML tags written in. There was some sort of technical glitch.
Pick a random story and edit the chapter. If there are no HTML tags, put them in. <p></p> denotes a paragraph. That should fix the problem.
I must assume that there were HTML tags in there before. If they ended up disappearing, I have no idea what has happened. Only manta2g can answer that question.
I want you to write a sample chapter and upload it three times. Once through an html file, once through a txt file without HTML tags, and once by typing the chapter into the text area without the HTML tags.
If the txt file shows up improperly, you may have located part of the issue.
Remember to delete all three files once you've finished conducting the test.
It's still strange because a txt file usually sorts itself into proper paragraphs at the very least once it's uploaded, regardless of HTML tags.