I think there are two thing that make it hard to read. First is the calligraphy font. Parts of the letters are too thin, and disappear. This is particularly noticeable on the lower case a and e. I can understand why you chose the calligraphy font, it makes for a good feel to the site. But it does make it a bit difficult at times.
On looking further at the line spacing issue, it is really only an issue when you have the drop capitals (or initials) on the first line of a paragraph. When you have the large drop capital on the first line, the spacing between the first and second lines is much smaller, causing the letters to actually overlap in some cases.
