The inspector has a minimum size below which we no longer try to make the content "look good" as it's basically impossible. If the text kept wrapping, you'd get single-word or single-letter lines with a very tall scroll view. This is not any more readable than having the text cut off.
Note that while the Inspector has a minimum size, when it is docked, we don't enforce this minimum. This is also by design. Sometimes, the user just wants to make a sibling docked window bigger and we don't want to prevent this.