Hmm, seems I was overly optimistic. This fails with two words only on one line, highlights the words "red" and "blue" as being composed of each other and so on. Back to
Sorry, could you give an example input icdiff performs poorly on? I just tried it on "red" and "blue", and got http://www.jefftk.com/icdiff-red-blue-2x.png which seems pretty reasonable to me.