You would need to set up a file dsn (in XP it's under Control Panel/Administrative Tools/Datasources (ODBC)) and then use the file dsn (Microsoft Text Driver) for the datasource as an ODBC(RDO) connection.
I set this test scenario up on mine like the following:
**File 1**
column1
1row1
1row2
1row3
**File 2**
column1
2row1
2row2
2row3
I set up the file dsn to point to the c drive and in the datasource screen I added file1.txt and file2.txt to the selected tables. Then the easiest thing to do is clear the links of the tables so that it pulls every row. It will warn you that there are multiple starting points. I don't generally recomend this, but it will work in this case and since it's not reporting off a database it probably isn't the end of the world. If you disregard the starting point message then add the fields to the report, when you run it you should get the following output:
1row1 2row1
1row1 2row2
1row1 2row3
1row2 2row1
1row2 2row2
1row2 2row3
1row3 2row1
1row3 2row2
1row3 2row3
From this you can change your grouping to get the output that you need.
You can also use this same connect against subreports instead of doing this linking where you have the main report pull the info from file1.txt and then put a subreport in the report footer that pulls from file2.txt. This option won't have the text collated, but you'd still have it in the same report.
Hope this helps some.