If you view the raw contents of the DB before you do any processing on it, do you see those literal character sequences, e.g. a backslash followed by the letter 'r', etc.?
If so, then it sounds like the issue is the data was corrupted before it was inserted into your DB. Rather than actual line break characters being inserted, you instead inserted those escape sequences. Perhaps the data was doubly escaped, e.g. you've got the dreaded magic_quotes_gpc enabled and later sanitized the data?
You'll probably want to investigate how this happened in the first place and make sure that issue gets resolved. For the display issue at hand, you should probably "clean up" your DB by replacing those '\r\n' sequences with actual line break characters.
(Of course, a secondary issue might then pop up; namely, line breaks in HTML markup don't result in line breaks displayed on the page - you have to insert <br> entities for that to happen.)