I've always had luck with the Chr(10) & Chr(13) - I have provided a sample below. This is an expression for an address text box I have in a report.
=Iif(Fields!GUAR_STREET_2.Value <> "",Fields!GUAR_STREET.Value & Chr(10) & Chr(13) & LTrim(Fields!GUAR_STREET_2.Value),Fields!GUAR_STREET.Value)
Also, if you are building a string you need to concatenate stuff together with an & not a + Here is what I think your example should look like
=IIF(First(Fields!VCHTYPE.Value, "Dataset1")="C","This is a huge paragrpah of text." &
Chr(10) & Chr(13) & "separated by line feeds at each paragraph." &
Chr(10) & Chr(13) & Chr(10) & Chr(13) & "I want to separate the paragraphs." &
Chr(10) & Chr(13) & Chr(10) & Chr(13) & "Its not working though."
, "This is the second huge paragraph of text." &
Chr(10) & Chr(13) & "separated by line feeds at each paragraph." &
Chr(10) & Chr(13) & Chr(10) & Chr(13) & "I want to separate the paragraphs." &
Chr(10) & Chr(13) & Chr(10) & Chr(13) & "Its not working though." )