So what you actually want to do is put a line break after every sentence and possibly after every clause, so that in the LaTeX source diffs work sanely, while the output looks as normal.
What you'd like Git (or whatever your diff'ing program) to do is parse the individual sentences as individual lines for version control.
To each his own though. I have trained myself to start putting LaTeX sentences on separate lines to accomodate for this, but don't think that this is the best solution.
It'd be nice to have an intermediate step that turned your LaTeX into a canonical form that works well with Git. And then when you are about to edit, converts it back into a nice-looking 80-column text file, or whatever you prefer.