This reminds me of a similar problem that drove us nuts until we discovered the fix. This was about 10 years ago.
We were generating complex HTML code and placing it in a rich text field on a notes document. The problem presented itself quite similar to what you are seeing in the HTML email. That is, very long web pages would break partway down.
We generated a test quite similar to yours and found that when the length of the HTML approached 65,536 characters, a character was dropped and a new line was inserted. (I don't remember the exact number but it was not a power of 2 either.)
Our fix was similar to yours in that we wrote a library object (in Java) for sending the code to the rich text field which kept a count of the characters. When the character count neared 32,768 we would look for a '>' and insert a new line after it and reset the character count. That solved the problem and we never looked back. (That system created web sites that looked nothing like a generic Domino site.)
I think it's interesting that your problem occurs at 655 characters and ours occurred near 65,536.