For what it's worth, GitHub Flavored Markdown changes this to be more TeXy: any newline in text renders as a <br>, and you add an extra blank line to denote a paragraph break.
Unfortunately that means that you absolutely need to enable word wrap in your editor, people cat-ing your readme on the shell will see ugly mid-word wraps, etc. Not the end of the world or anything, but somewhat inconvenient.
That sounds like a failure of cat more than a failure of markdown. There isn't a command-line argument for cat to break long-lines at the last whitespace of the line instead of mid-word?