You are doing it right, so I guess something else is at fault (not export-ing COLUMNS ?).
A trick to debug these cases is to make a specialized command (a closure for programming language guys). Create a shell script named diff-columns doing:
exec /usr/bin/diff -x -y -w -p -W "$COLUMNS" "$@"
and just use
svn diff "$@" --diff-cmd diff-columns
This way your code is cleaner to read and more modular (top-down approach), and you can test the diff-columns code thouroughly separately (bottom-up approach).