That looks right to me - the /window -M switch chops text at tab stops. A tab stop is eight characters in length by default. Since you are using a non-monospace font, the width of a space is calculated based on the average character width of that font. If you test this with a monospace font, such as FixedSys, you will see that it is chopping the text at the eighth character.
I would not recommend using the tab stop feature with non-monospace fonts since you will have to manually tweak it until it fits that font's character widths. With a monospace font the spacing will be predictable and will be the same regardless of which monospace font you use.
Note: the old version of mIRC was not calculating average character widths correctly and this has been fixed in the new version, so you may see a discrepancy between 6.35 and 7.0.