I'd rather suspect the Windows API behind for this behavior, rather than the file manager itself. Apparently there might be leaked Windows 3.1 source code (but not all of it):
https://www.betaarchive.com/forum/viewtopic.php?t=41781 (only comments here, didn't check further to see if/where this can be downloaded), but not sure if the relevant source is visible there. Windows 3.1 doesn't seem to use the same conversion as for Alt+XXX to read file names (which are stored in the OEM charset on the disk, e.g. code page 437), as typing Alt+255 enters a normal space (not event a non-breaking one).