Others have pointed out that "we should be changing the tools, not the way we write things", which is probably true. You can wdiff, and you can use git --word-diff, but applying patches is not as easy I think, and certainly version control systems usually don't have a good merge strategy. And what about those \n shifting around?

I'm down with more tool-based strategies if they exist and work though. Refutations welcome! :)

(I do think that all formats do work within tools though. The fact that we're filling/wrapping paragraphs is to satisfy our existing plaintext editor tools...)