I'm wondering if there could just be a way of preserving line breaks and paragraphs within the body text without wrapping the entire thing in opening and closing P tags.
Because even if you had something like you describe, the convert line breaks option still puts those tags at the beginning and end, doesn't it - forcing the body text on the next line regardless?
Then again, without that opening P tag, I guess the HTML would get mucked up when MT tried to close the first paragraph within the text and start the next one - unless you manually inserted the opening P tag before your title in your template.
Ugh, this got more confusing than I thought it would.