When a group of lines is quoted (e.g. in a passage of prose, or in a note, or as part of an epigraph), do not place the lines inside a <LG> tag unless you have good reason to believe that the lines represent a complete stanza, e.g. if more than one stanza is quoted and you need to separate them; or possibly if the metrical form makes it clear that a whole stanza is quoted. If all you know is that some lines of verse are being quoted, then tag them as verse lines (<L>), period.
For was there ever born a more chitinous poet
than Smith?</P><P>When I read Smith's odes, I can only exclaim,
in the words of Roscoe,
<Q>
<L>Come, take up your hats, and away let us haste</L>
<L>To the Butterfly's Ball, and the Grasshopper's Feast.</L>
</Q>
[Sometimes (e.g. when the quotation coexists with commentary inside a <NOTE>), you may need, as in the above example, to embed the <Q> tag inside a <P> tag.]
Doughty's work bumps and bounces over the next
800 pages, but never again reaches the height
from which it began.</P><P>When the subject of beginnings is broached,
one cannot help but think of that finest of
first sentences:
<Q>A new voice hailed me of an old friend when,
first returned from the Peninsula, I paced again
in that long street of Damascus which is called
Straight; and suddenly taking me wonderingly by
the hand "Tell me (said he), since thou art
here again in the peace and assurance of Ullah,
and whilst we walk, as in the former years,
toward the new blossoming orchards, full of the
sweet spring as the garden of God, what moved
thee, or how couldst thou take such journeys into
the fanatic Arabia?</Q>
but not here:
Tolkien's work wanders wonderfully through another
200 pages, but never again induces such a sense
of inevitability.</P><P>When the subject of beginnings is broached,
one cannot help but think of that finest of
first sentences,
In a hobbit hole (what admirable concision!)
there lived a hobbit.
In the second case, the quotation is interrupted, and it is therefore easier to treat it as an inline quotation and omit the <Q> tags.
<Q> can if necessary even contain an entire <TEXT>, with its own <FRONT> matter, <BODY>, <DIV> structure, and so on. Use <Q> for such embedded items, rather than trying to treat them as <DIV>s of the main text (unless that's really what they are). Treating them as <DIV>s forces you to treat all the material surrounding them as <DIV>s too, at the same level.
Prefer this:
<DIV1 TYPE="introduction">
<P>blah blah</P>
<P>blah blah</P>
<P>
<Q>here's a poem</Q>
</P>
<P>blah blah</P>
</DIV1>
rather than this:
<DIV1 TYPE="introduction">
<DIV2 TYPE="stuff before the poem">
<P>blah blah</P>
<P>blah blah</P>
</DIV2>
<DIV2 TYPE="poem">
<LG><L>here's a poem</L></LG>
</DIV2>
<DIV2 TYPE="stuff after the poem">
<P>blah blah</P>
</DIV2>
</DIV1>