I discovered the same problem when I upgraded to Office 2008. It is probably not your line spacing that is the problem; it could well be the paragraph spacing since you are hitting the return key.
Open Word to a blank document in Print Layout view. Look to the right side of your screen to see if the Formatting Palette is on-screen. If it is not, click the Toolbox icon above the blank document or click View>Toolbox>Formatting Palette to get it on-screen. Now open the Alignment and Spacing sub-dialog in the Palette. Under Paragraph Spacing, the first line has drop-down boxes for "Before" and "After." If your Palette is like mine, the default listing for "After" is "10," which is what is making it look like you are double-spacing every time you press the return key.
Now, changing the "After" entry to "0" will only work in the current document. To keep this from happening on every new document, you will need to open the Normal template, make the "After" change, and then save the template.
In fact, I am having this very same problem in the Notebook Layout view.
The formatting palette will not let me access the Paragraph Spacing choices and I have had to "remove" the notebook lines so the writing does not appear to be written on the lines - which completely defeats the utility of the notebook view. I will be posting about this situation shortly.
Hope this helps,
Patricia