I'm wondering why posts to my www.betraces.com.au have no paragraph returns.

Where would I look in the theme settings that would control this.

I can't see anything in the stylesheet so I'm flummoxed.

this is not an Atahualpa issue. If you switch to the default theme you will have the same issue.

Do you use the 'visual' or 'html' editor when making posts
Do you cut and paste them from a wordprocesser?

Remember, the text that goes in a post is NOT formated as a word processor would, it gets formated as HTML and all the rules of HTML apply