Driving home today I realized that my explanation of Doug's question about diamagnetic materials was completely wrong. Diamagnetism (and paramagnetism and ferromagnetism) apply to magnetic fields, not electric fields! So for magnetic fields, the analog to the permittivity (called the permeability) can indeed be less than one, but for electric fields, the dielectric constant has to be bigger than one. Qualitatively, you can think of it this way: the atom in the dielectric substance gets polarized in the way I described in class. The electrons always get pulled and protons pushed by the E field. Thus, the induced field always tends to cancel the external field. So therefore K is bigger than one.