If create the body property as
System.Net.Mail.MailMessage message = new System.Net.Mail.MailMessage();
message.Body =\"First Line \\n second line\";
The key to this is when you said
using Outlook.
I have had the same problem with perfectly formatted text body e-mails. It's Outlook that make trash out of it. Occasionally it is kind enough to tell you that "extra line breaks were removed". Usually it just does what it wants and makes you look stupid.
So I put in a terse body and put my nice formatted text in an attachement. You can either do that or format the body in HTML.