The XML/HTML Formatting does wrap based on the code's location, not a fixed left margin. It can be easily togged on and off using the Document menu or the html_formatting_toggle command. After toggling it on, you can then reformat a paragraph by positioning the cursor in the paragraph, press backspace or delete to remove a space, and retype the space. The paragraph will then be reformatted according to the spec.
Before:
<p>
Sing, O goddess, the anger of Achilles son of Peleus, that brought countless ills upon the Achaeans. Many a brave soul did it send hurrying down to Hades, and many a hero did it yield a prey to dogs and vultures, for so were the counsels of Jove fulfilled ...
</p>
After:
<p>
Sing, O goddess, the anger of Achilles son of Peleus, that brought countless
ills upon the Achaeans. Many a brave soul did it send hurrying down to
Hades, and many a hero did it yield a prey to dogs and vultures, for so were
the counsels of Jove fulfilled ...
</p>