Manual line wrapping stems from the old days when editors were more "line based" and had no WYSIWIG features. You had to take care of formatting the text yourself. This meant manual line endings and adding empty lines to separate paragraphs.
With the advent of automatic line wrapping (and better/quicker) hyphenation to support it, life for text editor users became easier, though we still had formatting tasks in separating paragraphs of texts, paragraph headers etc.
The rise of WYSIWIG word processors meant all this manual control was no longer necessary, but many people are still in the habit of doing it. It is far quicker to add an empty line than to change the style for a paragraph to provide enough white space to separate them visually. And many people are of course used to some type of mark down editor (like the one used on SE) that still require empty lines to separate paragraphs.
UX-wise I'd say you need to support automatic line wrapping. If only to provide a better experience when entering text. I'd hate to have to go back to manual wrapping. It already irks me enough that I have to do this in the comments I write when coding and that I have to manually reformat the comments when adding or removing text. Plus, supporting automatic line wrapping does not make it impossible to do it manually...
Reading UX is another matter. Manually wrapped paragraphs have their formatting severely broken when viewed in a narrower screen. On the other hand auto-wrapped paragraphs become almost unreadable when viewed in wider screens because the line length increases indiscriminately and many people always have their forms maximized. Personally I find the broken formatting of manually wrapped paragraphs a bigger problem than the line length getting too long as the latter is easily fixed by resizing the window, while the first requires me to manually reformat the paragraph to get a better reading experience...