diff --git a/src/calibre/ebooks/pml/pmlconverter.py b/src/calibre/ebooks/pml/pmlconverter.py
index d2eb2c3736..20d8c7186b 100644
--- a/src/calibre/ebooks/pml/pmlconverter.py
+++ b/src/calibre/ebooks/pml/pmlconverter.py
@@ -143,7 +143,9 @@ class PML_HTMLizer(object):
 
     def __init__(self):
         self.state = {}
-        self.toc = TOC()
+        # toc consists of a tuple
+        # (level, (href, id, text))
+        self.toc = []
         self.file_name = ''
 
     def prepare_pml(self, pml):
@@ -494,7 +496,7 @@ class PML_HTMLizer(object):
         output = []
 
         self.state = {}
-        self.toc = TOC()
+        self.toc = []
         self.file_name = file_name
 
         indent_state = {'t': False, 'T': False}
@@ -542,6 +544,7 @@ class PML_HTMLizer(object):
                         # inside of ="" so we don't have do special processing
                         # for C.
                         t = ''
+                        level = 0
                         if c in 'XC':
                             level = line.read(1)
                         id = 'pml_toc-%s' % len(self.toc)
@@ -553,7 +556,7 @@ class PML_HTMLizer(object):
                         if not value or value == '':
                             text = t
                         else:
-                            self.toc.add_item(os.path.basename(self.file_name), id, value)
+                            self.toc.append((level, (os.path.basename(self.file_name), id, value)))
                             text = '%s<span id="%s"></span>' % (t, id)
                     elif c == 'm':
                         empty = False
@@ -624,7 +627,72 @@ class PML_HTMLizer(object):
         return output
 
     def get_toc(self):
-        return self.toc
+        '''
+        Toc can have up to 5 levels, 0 - 4 inclusive.
+        
+        This function will add items to their appropriate
+        depth in the TOC tree. If the specified depth is
+        invalid (item would not have a valid parent) add
+        it to the next valid level above the specified
+        level.
+        '''
+        # Base toc object all items will be added to.
+        n_toc = TOC()
+        # Used to track nodes in the toc so we can add
+        # sub items to the appropriate place in tree.
+        t_l0 = None
+        t_l1 = None
+        t_l2 = None
+        t_l3 = None
+
+        for level, (href, id, text) in self.toc:
+            if level == u'0':
+                t_l0 = n_toc.add_item(href, id, text)
+                t_l1 = None
+                t_l2 = None
+                t_l3 = None
+            elif level == u'1':
+                if t_l0 == None:
+                    t_l0 = n_toc
+                t_l1 = t_l0.add_item(href, id, text)
+                t_l2 = None
+                t_l3 = None
+            elif level == u'2':
+                if t_l1 == None:
+                    if t_l0 == None:
+                        t_l1 = n_toc
+                    else:
+                        t_l1 = t_l0
+                t_l2 = t_l1.add_item(href, id, text)
+                t_l3 = None
+            elif level == u'3':
+                if t_l2 == None:
+                    if t_l1 == None:
+                        if t_l0 == None:
+                            t_l2 = n_toc
+                        else:
+                            t_l2 = t_l0
+                    else:
+                        t_l2 = t_l1
+                t_l3 = t_l2.add_item(href, id, text)
+            # Level 4.
+            # Anything above 4 is invalid but we will count
+            # it as level 4.
+            else:
+                if t_l3 == None:
+                    if t_l2 == None:
+                        if t_l1 == None:
+                            if t_l0 == None:
+                                t_l3 = n_toc
+                            else:
+                                t_l3 = t_l0
+                        else:
+                            t_l3 = t_l1
+                    else:
+                        t_l3 = t_l2
+                t_l3.add_item(href, id, text)
+
+        return n_toc
 
 
 def pml_to_html(pml):
diff --git a/src/calibre/ebooks/txt/processor.py b/src/calibre/ebooks/txt/processor.py
index 206a18b3e4..546d3f1842 100644
--- a/src/calibre/ebooks/txt/processor.py
+++ b/src/calibre/ebooks/txt/processor.py
@@ -103,7 +103,7 @@ def separate_paragraphs_print_formatted(txt):
     return txt
 
 def preserve_spaces(txt):
-    txt = txt.replace(' ', '&nbsp;')
+    txt = re.sub('(?P<space>[ ]{2,})', lambda mo: ' ' + ('&nbsp;' * (len(mo.group('space')) - 1)), txt)
     txt = txt.replace('\t', '&nbsp;&nbsp;&nbsp;&nbsp;')
     return txt