The style I've been attempting is:
   Action, unquoted third person past tense.
   Dialogue, quoted second person present tense.
   Thought, unquoted first person present tense.

     That is standard writing style for most 3rd person books.

The problem is that the difference between Thought and Action is too
subtle.  Thought needs to be quoted somehow, but I don't really like any
of the alternatives.
Double quotes: Confused with Dialogue.
Single quotes: Confused with Dialogue.
Fancy quotes: Turns into junk in ASCII-7.
Angle Brackets: Bothers HTML.
Braces: Too silly.
What we <i>really</i> want is italics, but there's no standard,
uncluttered, way of transmitting that.  (Anybody for a Brace to italic
filter?)

     No, we don't need anything. Look at most any book, and see how the
author did it. I'd suggest Terry Brooks and/or R.A. Salivatore <sp>, because
they do a very good job of differentiating between thought/action without
special characters.
     To sum it up, thought is written in first person, that is enough
clarity for most people. There is no need to quote the thought, or otherwise
offset it, except to mention that "he/she thought", or something similar.
--
Ben Kosse bmk7411@cs.rit.edu
BGC Otaku and worshipper of the Red-Eyed Goddess. Member of ShAS.
Anime, RPG's, computers, poetry (read/write), music (listen/compose).
Author of the Bubblegum Crisis theme pack (see the homepage below).
Homepage with anime and other interests. (http://www.rit.edu/~bmk7411)