Possibly, some of the fluid retention in your tissue space that was a result of an inflammatory diet was responsible for tone in your muscles that wasn't actually related to the volume of the muscle fibers and mitochondira themselves.

I can't see any biochemical reason why a diet with sufficient energy, especially with plenty of protein, would have a catabolic effect on your muscle mass unless you're eating once every couple of days.

EDIT: I should probably add that when I used to do bodybuilding splits with hypertrophy-range reps (10-12), I had much firmer muscles than I do now while I'm doing pure strength training (5 reps). I'm much stronger now than when I did hypertrophy, and I look more "dense" in terms of body composition. A lot of body-building and hypertrophy is an illusion where much of the size comes from increased fluid retention in the muscles and maybe inflammation (might be 100% wrong on this claim, but I think I read that somewhere trustworthy??). "Strong" muscle gains aren't as fluffy as those. So the thrust of this is that I lost muscle tone and weight when I switched from the fluid-retaining hypertrophy workouts to the real hyperplasic, muscle-building strength workouts, but I'm stronger and more "densely" lean now. Thus, I think this experience kind of speaks to the biology behind your question but from a different angle.

This is where you bring out the tape measure. Measure your stomach and hips or other areas to see if they're getting smaller. You can be losing weight as either muscle or fat, so the scale isn't really a good indicator.

You are probably feeling a little weak just now because your gut enzymes have not been switched over from consuming carbs to consuming the fat you are now eating. You just need to keep on eating paleo and you will see the weight drop...but you have to get through the adjustment period first.

Take a look at this posting on Low Carb Flu. http://www.gnolls.org/1984/the-science-behind-the-low-carb-flu-and-how-to-regain-your-metabolic-flexibility/

Do you lift?

If so, are you unable to lift as heavy? If no, then I wouldn't worry about it.

I usually run around 8% BF, I know when it creeps up a bit I look a bit bigger, due to the extra padding. Could be a factor. Another reason is that your intramuscular fat has leaned out a bit, that may affect the visible size of your muscle.

To paraphrase what someone said above, has your strength decreased? That's the surest way to tell.

I've lost 45 lbs since Christmas on Paleo (now close to where I should be). I never thought I had fat legs - I'm a lifelong biker and they looked pretty good - but can't believe how much fat they had to lose. Despite them now looking skinny, my strength has increased as a result of lifting weights; I'm leg pressing 400 lbs. A friend of mine who has lost 35 lbs without exercise has, however, definitely lost strength and muscle.

I'm a big believer in lifting heavy things. Unless you are physically unable, I'd recommend adding resistance training to your lifestyle.

Good luck!