@cbt, I was wrestling with this a little while ago and finally got it working. I was using BMFont as well. Have you confirmed that the delivered fonts with the library work as intended? I had a few different problems with this library, and I think the one you outline above was one of them.
Since I modified mine to circumvent the Windows Phone "text performance" issue, I haven't seen a problem. I can send you my implementation, along with the font bitmap I generated, and see if it works for you, if you want. Let me know and I'll zip it up and send it over for you to test.