this most likely caused by the wpautop filter. I have to investigate this further, how this is implemented in the twentyten (default theme), because I also get some problems with this.
Anyway you can edit the hooks.php (in library/functions):
change this:
add_filter('the_content', 'my_formatter', 99);
remove_filter('the_content', 'wpautop');
remove_filter('the_content', 'wptexturize');
to this:
//add_filter('the_content', 'my_formatter', 99);
remove_filter('the_content', 'wpautop');
//remove_filter('the_content', 'wptexturize');
This removes a custom function that I implemented in version 1.4 and also removes the wpautop filter that is causing the automatic paragraph tags. report back to me if it fixed the problem.