Concerning excess carriage returns, I have indeed placed one blank line before and after the quotes in order to work around an issue with the PDF generation - see Incorrect PDF formatting for paragraph following blockquote - #4 by ds. That’s not an ideal solution, but I can live with it.
Removing the extra line does result in less space in epub, but not the elimination of all extra space. As I said before, there appears to be a minimum space that can’t be decreased.