Excel (I'm using 2002 SP3) seems very inconsistent about resizing cells to fit the text when 'wrap text' is enabled. It seems that if the row height has been manually adjusted (by dragging the cross hair when the cursor is over the row indicators) it overrides the automatic height adjustment.
I've also found that if you enable 'wrap text' after the cell is 'overfilled' it won't adjust it. Sometimes selecting the text and then pressing <Enter> instead of simply selecting another cell will get the height to automatically adjust.
I typically make a new spreadsheet, then enable 'wrap text' for the entire spreadsheet (or the required cells), and then paste the data into the new spreadsheet.
Let me know if you find any other techniques.