The problem is that the text file has explicit newlines that the kindle is honoring, but the newlines are later in the line than the word-wrap wrap due to the Kindle screen size being narrower than the original text was intended for. It's a frequent problem with .txt files on all platforms.
Here are a few tools to try:
http://www.textfixer.com/tools/remove-line-breaks.php
And some instructions:
http://lucydebate.blogspot.com/2009/...ne-breaks.html
If you happen to use Linux [and possibly MacOS -- I think it has sed in its normal distribution] I can give you even better instructions.