You're right that the line-wrap option is involved. If I disable line-wrap opie-console stays in its window, but - as you'd expect - long commands are more difficult this way.
Building on what you suggested I found that if I disable line-wrap, rotate the screen (from the Opie Menu), rotate it back, and the enable line-wrap, I get the best of both worlds (line-wrap & a proper window). But it is a nuisance having to do that when, before, it "just worked". Still, thanks for the work-around.
Edit: Turns out you can just rotate the display and rotate it back, without disabling and re-enabling line-wrap. It's as if the window's dimensions are set incorrectly the first time, but not subsequently.