Ok I've had some joy whilst digging around in the code.
file: wp-content/plugins/formidable/classes/FrmNotification.php
Around line #59 – function send_notification_email($to_email, $subject, $message, $reply_to='', $reply_to_name='', $plain_text=true)
I changed the $plain_text=false. Then I also added a few BR tags where the form values had '\r\n'. This then meant the IF condition at line #71 that checks to see if $plain_text=true then strip_tags and html_entity_decode – now fails and now the emails come through formatted fine.
Only problem is this is a hack – and will get wiped in future updates!
Any ideas on how to make this not a hack?