I'm using LyX 220.127.116.11 under Windows XP, and, as the title says, it doesn't wrap underlined text - i.e., the underlined text is "overflowing" outside of the page.
What are you using to underline text? I'm guessing that it is something other than
Furthermore, in TeX generally, underlining should rarely be used as it is a convention of typewriters, not typesetters. Italics, font changes, even boxes are better ways to set off text in TeX. I'm also guessing that it was pretty hard to force LyX to underline and so you wound up accidentally forming an indivisible TeX
LyX is pretty nifty for what it does, but it is only a wrapper for TeX and will likely produce more such mysteries when provoked. I'm not saying "learn TeX", I am suggesting that you become familiar with the 'real document' by keeping the source view open.