ok. I figured out a simple fix, that even I can deal with.
I went to phrases via the vBulletin Admin Panel, did a search for "you may reply to this email",
I then edited the following English (US) Translation versions
ei_notify_post
ei_notify_post_forum
ei_notify_thread
ei_notify_thread_forum
and then commented out this part of the code following $emaillinks :
<tr> <td align="center">You may reply to this email to post a reply to the forum.<br>You can also begin a new thread by sending an email to <a href="mailto:$foruminfo[ei_replyaddress]">$foruminfo[ei_replyaddress]</a>!</td> </tr>
That removes the part of the footer dealing with reply and starting threads via email. I like this as it retains the rest of the useful features, and when your new fixes eliminate the html code dump and quote boxes, I can just uncomment this out again.
This fix still created quote boxes when clicking the link from the email to reply via the forum, but I can live with it. At least the HTML dump is not there.
I really don't like the redundancy of quote boxes, but realize this is a personal preference and not a global one. I hope you'll consider making quote box creation an option as well, assuming your head doesn't explode in the meantime.
Hope this helps somebody...
DC