How to make a "term reference" > "taxonomy vocab" display alphabetically in a content type?
Change the order (weight) of the terms within the vocabulary to be alphabetical.

I've just tried this and it works in D7.23 using a 'Term Reference' field. To test this I ordered terms into non-alphabetical, saved the vocabulary, then created a node. Terms were in the order I'd specified. I then 'reset to alphabetical', saved the vocabulary and created a node. Terms were now in alphabetical order.

I found your question title confusing as it talks about terms reference but then the question itself mentions node reference. Please edit the question and clarify.