The issue has now resolved itself...

I have performed a diff on my HTML folder and the 1.6.1 source HTML folder and recreated all differences. As I have customised the tracker with extra fields and lookups, I have only ever updated the HTML as advised in the upgrade document not performed a complete source refresh...

The most likely looking candidate was this missing declaration in the style.css file:

pre {
  white-space: pre-wrap;
}

Now when adding a message, the text no longer is getting truncated with hard returns. Instead word wrap seems to be correctly handled by the browser depending on the size of the text area.

I have kept the original HTML folder, with the issue, if you would like me to do any more investigation...