Okay more information as I isolate this bug:
I updated one site to 3.4.2 and the apparent padding problem reappeared, so I viewed the page source, and what I found is that wordpress somehow inserts a <br />
tag at the end of form hidden input lines,
<input type="hidden" name="pbidit" value="auxsteam" ><br />
so several of these at the top of a form shove it down that many lines. The short-term solution is to move those hidden inputs to the end of the form, now pushing the page trailer down instead, the lesser of the evils.
I started looking into the wordpress files, for the do_action function, soon realizing I am now out of my element. Good luck, anybody!!