I don't think that you are right to be attempting to solve this problem `in Formbuilder'. That you seek to affect the display of your data alone (preserving the actual data as-is) strongly suggests that the solution may best be part of your display logic.
A solution is, in fact, provided by the Template Toolkit in its built-in html_para_break() filter. Since, however, you say you are using HTML::Template I suggest that you could do a lot worse than looking at the TT2 solution and seeing what you can learn (or pinch!) from it.