Hi Kashyap,
The problem seems to be that when the HTML exporter finds more than one element within a list item, it wraps each one in its own set of =<p>...</p>= tags, which creates the additional space. You can see that this has nothing to do with the quotes, just inserting a second paragraph within the list item triggers this, e.g.:
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3. Test 3
- sub bullet under test 3, with a quote:
another paragraph within the bullet
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As Juan Manuel suggested, one way to fix the visual difference is with CSS. To be more selective, you could style only <p> items with a <li>, like this:
#+HTML_HEAD: <style>li p { margin: 0em; }</style>
In my test, this eliminates the spacing before those items, making them all look the same in the browser.
Looking at the ox-html code, there doesn't seem to be a way to prevent this from happening at the moment, a plain paragraph is always wrapped in <p> tags.
Hope this helps,
--Diego