imhotep,
Take a closer look at perldoc perlvar. To turn on "paragraph mode" in Perl, set $/ = "" not undef. Unfortunately, the rest of your post isn't very coherent (to me anyway), but the following might be what you want:

open (INPUT, '<', $file) or die $!;
{
    local $/ = "";
    while ( <INPUT> ) {
        print '<p>', $_, '</p>';
    }
}
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