Conventional wisdom says either indent paragraphs or have a space between them but don't do both. The argument is that since the point of both methods is to show where one paragraph ends and another begins, either way is sufficient.
Sufficiency doesn't win the aesthetic argument, though; nor does what applies to typing on paper necessarily apply to displaying words on a screen. Personally I think a spacing of 12px between paragraphs of 11.5pt Times, each indented by 35px and with an internal line-height of 1.45, looks highly inviting. But how does such a combination rate for user experience?
Edit: I found this site, which gives 12 examples of paragraph typography. The format I'm asking about is no.4.