Open the output window.
Look for the little icon on the very right-hand side of the toolbar that starts with the text "Show output from:" in it. It looks like a small window with a carriage return icon. When you hover over it Visual Studio should display "Toggle Word Wrap" near your mouse pointer.
Click that icon.
You now have learned something that was so painfully obvious I feel embarrassed for not knowing this long ago and thus have chosen to pay my dues and share my answer with others so they don't suffer the same agony I have.
Seriously, this is really useful for those with small screens. I have a small Lilliput USB monitor that is good for small tool windows, Skype IM, etc. It works great for putting the output window on, except that it sucks having to always sideways scroll. After just putting up with sideways scroll for months I finally decided to see if I could make it word wrap. The answer was so easy but the amount of time/effort it saves is tremendous.