Soft word wrap seems like a black art judging by Google’s search results, especially as many of the solutions are for previous version of Vim.  I finally came across the solution via vim’s homepage.  And this solution automatically re-soft wraps the text when you insert some text in an existing line, thankfully.  There are few more tweaks needed, however.

In Vim 7:

:set formatoptions=1
:set linebreak

“linebreak” tells Vim 7 to break the lines visually.  “formatoptions=1” tells vim not to include hard linebreaks and break on the previous word (see below).  (Use :help fo-table for all the options.)  You must make sure you’ve got “list” off for this to work (:set nolist).  You now need to tell Vim 7 how to break the lines:

:set breakat=\ |@-+;:,./?^I

specifies spaces (\ ) and tabs (^I) etc cause lines to break.  This is the default.   But because now each paragraph is a single line, the j and k will move up and down whole paragraphs, instead of lines.  To fix this I have these lines in my .vimrc.  It sets the normal hjkl commands to work via visual, not actual, lines. You can issue these commands at runtime by prepending : to them.

nnoremap j gj
nnoremap k gk
vnoremap j gj
vnoremap k gk

If you want a border on the left of the screen in Vim 7, use:

:set foldcolumn=7

I’ve not found out how to include a border on the right of the screen with formatoptions=1 which seems to preclude “textwidth” etc.  I have a resized vertically split vim window using :vsplit (a la this) to achieve something similar.

As these are not the kind of settings I use when I code, I use :mksession and :mksession! to save these settings and use that session, via vim -S Session.vim, whenever I fancy writing some prose.