If you open /usr/share/plasma/plasmoids/org.kde.plasma.icon/main.qml and search for line there's a section called PlasmaExtras.ShadowedLabel which seems to correspond with icon text and there's a line maximumLineCount: 2 you could try reducing that to 1 and it might fix your issue.

It looks like KDE Plasma is based on QT6 and the icons I believe are a QT6 Label so you can also add some styling to it yourself. Here's the documentation for it: https://doc.qt.io/qt-6/qml-qtquick-controls-label-members.html

There is a property called lineHeight so you could just add that to the PlasmaExtras.ShadowedLabel and see if that fixes it.

It looks like the png is getting word wrapped. Line spacing is so large that the png on the second line is getting pushed into the space of the icon below, and the icon below is given a higher Z value, so it goes over it. The different font has a different letter width and can influence the line spacing by being taller than the original font.

See if you can find an option to reduce line spacing or an option to increase icon spacing (vertical or horizontal). I would expect these to be advanced settings though. Iirc, most Linux desktops don't use ellipses on long names, like some other operating systems (macOS iirc).