The margins are set differently for odd/even pages. So you need to adjust \marginparwidth in order for the \marginpar to fit inside the inner margin:

\documentclass[letter]{book}
\renewcommand{\verse}[1]{\textsuperscript{#1}}
\newcommand{\sidenote}[1]{% \sidenote{<side note>}
\refstepcounter{sidenote}\mbox{\textsuperscript{\alph{sidenote}}}%
\marginpar{\footnotesize\raggedright\strut\mbox{\textsuperscript{\alph{sidenote}} }#1}%
}
\newcounter{sidenote}
\setlength{\marginparwidth}{.8in}
\reversemarginpar
\newcommand{\note}[1]{[#1]}
\begin{document}
\verse{1} \note{\textbf{P}} In the beginning%
\sidenote{Gn 1:1; Pr 8:22-31; Jn 8:58; 17:5; Cl 1:17-18; He 1:8-12; 7:3; 13:8; 1Jn 1:1; Rv 1:4,8,11,17; 2:8; 3:14; 21:6; 22:13}
the Word\sidenote{Is 55:11; Jn 1:14; He 4:12; 1Jn 1:1; 5:7; Rv 1:2; 19:13}
was \note{\textit{the Word already existed; there was the Word}}.
\newpage
\verse{2} \note{\textbf{P}} In the beginning%
\sidenote{Gn 1:1; Pr 8:22-31; Jn 8:58; 17:5; Cl 1:17-18; He 1:8-12; 7:3; 13:8; 1Jn 1:1; Rv 1:4,8,11,17; 2:8; 3:14; 21:6; 22:13}
the Word\sidenote{Is 55:11; Jn 1:14; He 4:12; 1Jn 1:1; 5:7; Rv 1:2; 19:13}
was \note{\textit{the Word already existed; there was the Word}}.
\end{document}
I've added a \raggedright to the \marginpar alignment to make for better reading.
The following is an implementation using flowfram to manage the flow of text from one page to the next. In fact, flowfram mimics the boundaries set by geometry by setting up frames (static, dynamic and flow). We use the last two to create the solution.
The flow frames contain the text block detail, while dynamic frames contain the side notes. Each odd/even page uses its own flow and dynamic frame, the latter being appended with a new side note as they are used. A supplementary \sidenoteblock is kept to measure the height of the side notes on the page. If the side note addition exceeds the text block height, a \newpage is issued and the side note is reset.

\documentclass{book}
\newlength{\innermargin}\setlength{\innermargin}{\dimexpr1in+2em}
\setlength{\marginparwidth}{.75in}
\usepackage[twoside,hmargin={\innermargin,1.5in}]{geometry}% http://ctan.org/pkg/geometry
\usepackage{flowfram}% http://ctan.org/pkg/flowfram
\usepackage{everyshi}% http://ctan.org/pkg/everyshi
\usepackage{lipsum}% http://ctan.org/pkg/lipsum
% Regular odd/even text blocks
% \newflowframe[<page list>]{<width>}{<height>}{<x>}{<y>}[<label>]
\newflowframe[odd]{\textwidth}{\textheight}{0pt}{0pt}[oddpage]
\newflowframe[even]{\textwidth}{\textheight}{0pt}{0pt}[evenpage]
% Inner odd/even margin blocks
% \newdynamicframe[<page list>]{<width>}{<height>}{<x>}{<y>}[<label>]
\newdynamicframe[odd]{\marginparwidth}{\textheight}
{\dimexpr-\marginparsep-\marginparwidth}{0pt}[oddsidenote]
\newdynamicframe[even]{\marginparwidth}{\textheight}
{\dimexpr\textwidth+\marginparsep}{0pt}[evensidenote]
\EveryShipout{% At every shipout
\setdynamiccontents*{oddsidenote}{\rule{0pt}{1em}\footnotesize\raggedright}% Clear odd side notes
\setdynamiccontents*{evensidenote}{\rule{0pt}{1em}\footnotesize\raggedright}% Clear even side note
\gdef\sidenoteblock{\footnotesize\raggedright}%
}
\AtBeginDocument{% At \begin{document}
\setdynamiccontents*{oddsidenote}{\rule{0pt}{1em}\footnotesize\raggedright}% Clear odd side notes
\setdynamiccontents*{evensidenote}{\rule{0pt}{1em}\footnotesize\raggedright}% Clear even side note
\gdef\sidenoteblock{\footnotesize\raggedright}%
}
\AtEndDocument{% At \begin{document}
\appenddynamiccontents*{oddsidenote}{\par}% Finalize odd side notes
\appenddynamiccontents*{evensidenote}{\par}% Finalize even side notes
}
\makeatletter
\newcounter{sidenote}\renewcommand{\thesidenote}{\arabic{sidenote}}
\newcommand{\sidenoteblock}{}
\newcommand{\sidenote}[1]{% \sidenote{<side note>}
\refstepcounter{sidenote}%
\protected@edef\the@sidenote{\textsuperscript{\thesidenote}}% http://tex.stackexchange.com/a/40006/5764
\expandafter\g@addto@macro\expandafter\sidenoteblock\expandafter{\the@sidenote #1\space}%
\sbox0{\begin{minipage}{.75in}\sidenoteblock\end{minipage}}%
\ifodd\value{page}%
\getdynamicid{\@tempb}{oddsidenote}%
\else
\getdynamicid{\@tempb}{evensidenote}%
\fi%
\ifdim\dimexpr\ht0+\dp0>\textheight%
\appenddynamiccontents{\@tempb}{\par}%
\newpage\addtocounter{sidenote}{-1}%
\sidenote{#1}%
\else
\textsuperscript{\thesidenote}%
\expandafter\appenddynamiccontents\expandafter{\expandafter\@tempb\expandafter}\expandafter{\the@sidenote #1\space}%
\fi
}
\makeatother
\begin{document}
\sidenote{Here is the first side note.}\lipsum[1]
\sidenote{Here is the second side note.}\lipsum[2]
\sidenote{This is the third side note.}\lipsum[3]
\sidenote{Here is another, now the fourth, side note.
Here is another, now the fourth, side note.
Here is another, now the fourth, side note.
Here is another, now the fourth, side note.
Here is another, now the fourth, side note.
Here is another, now the fourth, side note.
Here is another, now the fourth, side note.
Here is another, now the fourth, side note.
Here is another, now the fourth, side note.
Here is another, now the fourth, side note.
Here is another, now the fourth, side note.
Here is another, now the fourth, side note.}\lipsum[4]
\sidenote{Side note number five.}\lipsum[5]
\sidenote{Another, the sixth one.}\lipsum[6]
\sidenote{More side notes are coming. This is number seven.}\lipsum[7]
\sidenote{Eight, yes, this is the eighth.}\lipsum[8]
\end{document}
Caveat: The above solution will not work for a side note that is longer that the text block height.
You can define
\newcommand{\sidenote}[2]{% \sidenote{<word>}{<side note>}
\refstepcounter{sidenote}%
\protected@edef\the@sidenote{\textsuperscript{\thesidenote}}% http://tex.stackexchange.com/a/40006/5764
\expandafter\g@addto@macro\expandafter\sidenoteblock\expandafter{\the@sidenote #2\space}%
\sbox0{\begin{minipage}{.75in}\sidenoteblock\end{minipage}}%
\ifodd\value{page}%
\getdynamicid{\@tempb}{oddsidenote}%
\else
\getdynamicid{\@tempb}{evensidenote}%
\fi%
\ifdim\dimexpr\ht0+\dp0>\textheight%
\appenddynamiccontents{\@tempb}{\par}%
\newpage\addtocounter{sidenote}{-1}%
\sidenote{#1}{#2}%
\else
#1\textsuperscript{\thesidenote}%
\expandafter\appenddynamiccontents\expandafter{\expandafter\@tempb\expandafter}\expandafter{\the@sidenote #2\space}%
\fi
}
that allows you to use \sidenote{<word>}{<side note>}, which makes sure that <word> and <side note> are always together, while the side note reference always follows the word; similar to
... blah blah blah word7 blah blah blah ...
sidenotespackage. – cgnieder Oct 17 '12 at 20:04