Use the paste from Word icon on the lower tool bar in the editor (although this isn't a sure-fire way to get around this issue), or switch to the "text" tab and paste it in there so that it will strip out all he Word code and then format the text in the WordPress editor.
Word is a word processor for print media, not for web use, and it generates HORRIBLE code. The WordPress implementation of the TinyMCE editor automatically filters out the bulk of Word code, but the issue with two blank lines between paragraphs is the direct result of using two returns in the Word document to create paragraph spacing. The TinyMCE editor reads that as an additional blank paragraph in between. The correct (or better) way in Word is to set a space after paragraphs (style) and then you just hit return once at the end of a paragraph and Word inserts 12pt or whatever of space between the paragraphs.
This isn't only an issue with WordPress's implementation of the TinyMCE editor, I can show you the same behavior in Joomla and Drupal.
Word is a webmaster/web designer's worst nightmare - I am one of those and I know.
My suggestion, if you want a Word-like writing experience when composing posts is to get Windows Live Writer, which is a free download and is very "Word" like, and it also creates solid, compliant code for the web, and you can even publish your stuff directly from WLW with no need at all to copy and paste.