"Let's say you start with a quote, followed by action or narration, and return to a follow up comment by the same person. I'd keep it all in one paragraph, yet it seems awkward to me when I do it. Is it just bad form? Is there a length limit?"

I think (or do I?) that technically, grammatical rules would specify the approach you described. Mostly, I think (there I go again!) grammatical rules were designed to improve readibility. Hence, the comma (which has the widest variety of usage, I belive).

For me, reading a dialogue in a story HAS to be smooth. When two characters are arguing, for example, I don't want the rapid exchange to be "jilted". (hmmmm, wrong word) A quote with a description followed by another quote seems very smooth to me. A paragraph break and a change of speaker then also seems smooth. Dialyn does it so well.

Sometimes, not much is needed to augment the spoken words. Again, this takes some talent on behalf of the writer AND some good development of the characters so that the reader "knows" them already and the words they speak are assisted by this knowledge.

Let me try to illustrate (ugh!):

"You're pathetic!"

"What?"

"I said, you're simply pathetic!"

"Hey, anyone could have lost their car keys."

So, is this an argument? If we knew the characters well enough, we would know it was not. If we knew the first speaker, developed in the "beginning" was kind of a prankster and a cute little teaser (and loved the other person), it changes the whole dialogue.

I'll re-write the exchange written with "descriptions" with the quotes to show what I mean and to show where added descriptions might be needed (when characters aren't as well "known" yet):

"You're pathetic!" Lisa could barely conceal her playfulness so she turned her head away.

"What?"

"I said, you're simply pathetic!" Knowing her teasing had plucked on just the right nerve, she cupped her hand over smile breaking over her lips.

"Hey, anyone could have lost their car keys." The embarrassment turned his face red.

Unable to control herself any longer, she quickly turned and pounced on him. "You know, you REALLY are pathetic...falling for my teasing so easily." She pushed him backwards so he fell on the bed. "Maybe you just pretended to lose them so I'd have to search all over your body for them."

Well, not a great example but...

If we knew how much Lisa loved him and what an impish girl she was, we could have written it without added description (to some extent).

(OK, I'll crawl under my lexicon)