I agree, Theresa. Paragraphs should be shorter, and buried dialogue is a sign that your paragraphs are too long. I'd say most paragraphs with dialogue shouldn't be more than 6 or 7 lines of print. Break the speech up-- make it interactive. Interruptions from the other speaker, actions, introspection, all these can be ways to break the speech and paragraphs up.
No rule of thumb here, but really, paragraphs are simply shorter now, to connect perhaps with our shorter attention spans. But a half-a-page paragraph-- let Faulkner have that.
That doesn't mean your paragraphs should be a sentence long-- that should be rare and only for emphasizing something of importance, like a zinger at the end of a scene.
Grandma's coffin was empty.
Okay, that's worthy of emphasis. :)