In chapter 3, what is the reason for Nick's breaking the story at this point?

There are a couple of things that could be pointed out as
the cause, but it is difficult to know exactly why without perhaps being able to consult
with Fitzgerald himself, who apparently made all the decisions about the narrative!  In
some ways you might also argue that Nick hasn't entirely broken the story at this
point.

But he does begin to realize that Gatsby isn't
everything he is cracked up to be, given that he remembers him from the war and
previously and knows that his background could be fleshed out but isn't.  Gatsby allows
the rumors to fly.

Perhaps the reason why Nick begins to
flesh things out is that he cannot wait much longer if there is to be a dramatic build
up until everyone else finds out the whole story.  It also helps to set up the reasoning
for why Daisy won't actually totally fall for Gatsby as there has to be a connection to
his less than high-class past for that to become the strong theme that it
does.