If you have "full justification" on (where the text extends to both sides of the text box), widows and orphans (so they're called when one or two words at the end/beginning of a block of text is left hanging separate from the main body of text, full justification will adjust the letter spacing so that the last word (the orphan) will look weirdly expanded, like your l....i.....n.....e example.
Text wrapping is only sorta related to this. Usually it determines if hyphens are inserted in a word when it would overlap the edge of the text box (instead of simply expanding the text box).
In general, you can highlight the last word or line of text and change the justification of that line only to "left justified" so that it will look like this:
blah blah blah
blah blah blah
b l a h b l a h
blah blah blah
blah.
The main body is full justified, which will affect the letter spacing as shown when there are fewer words to fill the space between the edges. The last line is left justified.
The only other thing I can think of is that maybe the font isn't super-conducive to having its letter spacing adjusted. For instance, my firm loves using Papyrus as its font for schematic design documents. Only trouble is, it is a mess to edit or view in the text boxes because it really can only be letter spaced one way. So if that's the case, try using a different, less fancy
font.
hope that's useful
Zolli