How to wrap lines correctly inside algorithmic

algorithmicx obviously wasn't intended to manage paragraph-style text as part of pseudo code. You're going to have to do some of your own legwork in order for it to replicate your requirements:

\documentclass{article}
\usepackage{algorithm,algpseudocode}
\makeatletter
\newcommand{\algmargin}{\the\ALG@thistlm}
\makeatother
\newlength{\whilewidth}
\settowidth{\whilewidth}{\algorithmicwhile\ }
\algdef{SE}[parWHILE]{parWhile}{EndparWhile}[1]
  {\parbox[t]{\dimexpr\linewidth-\algmargin}{%
     \hangindent\whilewidth\strut\algorithmicwhile\ #1\ \algorithmicdo\strut}}{\algorithmicend\ \algorithmicwhile}%
\algnewcommand{\parState}[1]{\State%
  \parbox[t]{\dimexpr\linewidth-\algmargin}{\strut #1\strut}}

\begin{document}
\begin{algorithm}
  \caption{My pseudo code.}
  \begin{algorithmic}[1]
    \While{this line is sooooooooooo long and boring and too much for algorithmic to handle}
      \State look at this state, this state is just too long for algorithmic to display it properly 
      \While{again this line is sooooooooooo long and boring and too much for algorithmic too handle}
        \State look at this state again, this state is just too long for algorithmic to handle, I'm just going to switch to Word
      \EndWhile
    \EndWhile
    \State
    \parWhile{this line is sooooooooooo long and boring and too much for algorithmic to handle}
      \parState{%
        look at this state, this state is just too long for algorithmic to display it properly}
      \parWhile{again this line is sooooooooooo long and boring and too much for algorithmic too handle}
        \parState{%
          look at this state again, this state is just too long for algorithmic to handle, I'm just going to switch to Word}
      \EndparWhile
    \EndparWhile
  \end{algorithmic}
\end{algorithm}
\end{document}​

In the above code, \parWhile and \parState define the paragraph-style pseudo-code macros that you're after.