DtsDebugHost Processes Consumes Huge Amounts Of Memory, Then Fails

I gave up on the ScriptTasks, but desided to use Custom tasks instead. Problem again. My code opens a 400M file and reads it line by line using StreamReader. Each line is approximately the same length. For each line, there is some processing, and then the line is written into another file using StreamWriter. I am watching the DtsDebugHost process with TaskManager open and here is what happens:

Initially its all good. Then when it read through first 150M+ of the input file, the memory usage of the DtsDebugHost shoots up dramatically - about 1Gig (both virtual and physical memory). Then the task fails with OutOfMemoryException. I thought the problem is with my code, but it still happens even if I only read a line from one file and write it to another, without any processing!

When I invoke the same code from Execute Process task, its all good - no problems at all whatsoever.

Any ideas?