bug#20296: 11.88.3; LaTeX-fill-paragraph gives unexpected result

[jfbu]

Remember to cover the basics, that is, what you expected to happen and
what in fact did happen.

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Emacs  : GNU Emacs 24.4.91.1 (x86_64-apple-darwin13.4.0, Carbon Version 157 
AppKit 1265.21)
 of 2015-03-15 on Atago.local
Package: 11.88.3

I do not understand the behavior of LaTeX-fill-paragraph. It keeps annoying
me with partially filled paragraphs.

I always work with hard-wrapped paragraphs and hit M-q very often to rewrap
when I modify things.

But something seems weird with LaTeX-fill-paragraph perhaps related to $..$
material it finds.

Sample .tex file illustrating the problem:

-------------
\documentclass{article}

\begin{document}
% Sample paragraph

Without the separation axiom this does not work, for example let $V$ be an
infinite dimensional Banach space and let $X = V\cup\{*\}$, and let's declare 
open the standard open $U\subset V$ as well as $X$ itself. This defines a 
topology. The space is globally compact in the sense of coverings, but it 
is not locally compact. Fortunately, it is not separated.

% Applying M-q (LaTeX-fill-paragraph) to the paragraph above we get:

Without the separation axiom this does not work, for example let $V$ be an
infinite dimensional Banach space and let $X =
V\cup\{*\}$, and let's declare open the standard open $U\subset V$ as well as 
$X$ itself. This defines a topology. The space is globally compact in the sense 
of coverings, but it is not locally compact. Fortunately, it is not separated.

% fill-column is 78
\end{document}
-------------

regards,
Jean-François