My apologies, I was specifically referring to text-based/console-based applications. All the GUI text editors seem to wrap and unwrap just fine.

Not exactly a word processor but it seems to me like you could try (if you can find it) the TSE or QEdit:

https://en.wikipedia.org/wiki/The_SemWare_Editor

what Qedit (often renamed simply to Q.exe) was capable of doing in the (good) old times was incredible.