So this problem is less about color and wrapping as it is rxvt's (and as you've noted, xterm's) treatment of the CSI_EL escape sequence, which is emitted by grep --color=always, surrounding the matched text as follows:
\E[01;31m\E[K<match>\E[m\[K Omitting the \E[K sequences in this pattern correctly displays colored characters at the end of a line with no strangeness surrounding the wrapping. I'm stepping through the ECMA spec now to see if it prescribes what is happening, and to try to discern the way to avoid the line mangling seen here. I will follow up with xterm as well to identify this as an inconsistency. -- To UNSUBSCRIBE, email to debian-bugs-dist-requ...@lists.debian.org with a subject of "unsubscribe". Trouble? Contact listmas...@lists.debian.org
