Diff -y output wrong when carriage return is used

[Barry]

Look at the two files being diffed in the following command, and then
look at the diff output. It's wrong, isn't it? Both files contain the
text "test1test2" with a carriage return between "test1" and "test2".
The diff command below (when I used it locally with just the file
names) omits the "test1" in Putty.

diff -y -W 80 http://www.polisource.com/DIFF_CR_TEST.txt
http://www.polisource.com/DIFF_CR_TEST_2.txt

In a similar test on longer files, the diff output included tabs where
there were none, between the carriage return and the text after it, for
a line in the second file.