Okay, the problem is that for some reason in TXT format you have a carriage return at the end of each line. You can fix this easily, but it takes some steps:
Step One: Make sure you have an extra Carriage Return / paragraph break between each paragraph.
Step Two: Open the Find/Replace box (I usually use Cntl-F and then Click on the Replace tab).
Step Three: Replace each paragraph break with some funky symbol. So in the "Find What" box put:
^p^p
(^p = paragraph break in WORD computer speak)
In the "Replace With" box put your funky symbol. On my test run to see if this would work I used this symbol:
~
Step Four: Don't freak out!
Step Five: Now, replace all single carriage returns with nothing. So, in the "Find What" box put:
^p
And in the "Replace With" box put:
(that really means nothing, no space, nada)
Step Six: Don't Freak out! Now, we'll fix what looks like a mess.
Step Seven: Replace funky symbol with paragraph breaks again. So, in the "Find What" box put your funky symbol:
~
In the "Replace What" box put back your double carriage returns:
^p^p
Step Eight: Dance with Joy.
Hope this helps.