I believe the middle-of-the-screen line wraps aren't automatic wraps, those newlines are part of the message you received. Try maximizing claws or changing the font size.

Background:
Plain text mails are usually line wrapped in column 72 when sending. On Maemo Claws default message view is less then 72 characters wide. Hence one incomming 72 character line is displayed on two lines. The second one ist not full because the original line ends here.

Where do I find the options "wrap long lines" and "automatic wrapping" you mention? Are they supposed to address your problem?