And I'm almost willing to bet that not letting you enter spaces might be the result of a "security fix" because they pass the contents of that field, unescaped, directly through to a wifi configuration shell script, and someone doing some testing discovered that spaces would "cause things to break", so the solution was to disallow spaces instead of performing escaping on the password string.
Also related: http://thedailywtf.com/Articles/Securing-Secure-Security.asp...
Edit: while Googling around for some other devices that might have this interesting issue, I found... https://github.com/xbianonpi/xbian-package-config-xbmc/issue...
Why is escaping input such a difficult concept to comprehend?