from: http://drupal.org/node/75844
Do this: find which TinyMCE theme you are using. For the sake of example, let's assume it is 'advanced'. Find the associated theme in your modules folder, thus:
/tinymce/tinymce/jscripts/tiny_mce/themes/advanced/editor_template.js
Back this file up (in the same dir is fine). Then do a search for the nowrap="nowrap" attribute/value pair, and remove it. Save and refresh your page... and voila :)