In SharePoint Designer, if you click the Comments field in one of the
rows of the web part, you can click a little arrow button on the right
to get a context menu. One of the options there is "Format as:".
Select "Rich Text" instead of "Text". You will get a warning that you
should only do this in a "trusted environment". Select Yes.
This should fix the formatting. Technically, what this does is add an
option to the xslt code 'disable-output-escaping="yes"', which allows
any html coding in the source data to be passed directly to the
browser.