That is some very, very odd code - and it is difficult to work out exactly what to say here!
I am assuming that you want to read the strings from a file, and write them to another file, yes?
So why are you creating the file anew each time you read a line from the input file?
You have two loops, one inside the other:
while(not end of input)
read a line
for each character in the string
create the file
write a line to it
You don't need the inner loop - you need to move the content of the inner loop to three separate places :
1) Create the StreamWriter before the main loop.
2) Write the line inside the main loop
3) Close the file after the main loop.
Try this kind of thing with a pencil and paper - it can help to get the order of teh various processes sorted out in tyour mind before you rush into code.