yes it's possible, and we have such titles on central. do you get and error message, or do the spaces just vanish?

invalid characters are not allowed in names on central.. the setting shouldn't be effecting titles.

I had this problem. Its the option to allow

'Allow admins to enter 'illegal' names in the user editor'

Needs to be 'Yes' for spaces.

I am having an issue with spaces in title names when a player uses the custom title module. (titlechange.php)

I get a bad nav when player chooses "Yes" after previewing the title. I only get the bad nav when there are spaces in the title. The options of allowing spaces in names is set to yes in the game settings.

I've been playing on a v1.1.1 beta site with spaces in most of the standard titles for over a year now, with no associated problems.  I think your later comments implied that this was not just an issue with custom titles, correct?

Which version of PHP are you using?  At a wild guess, I'd say this was a problem with either PHP or your web server -- sounds like spaces are not being correctly turned into the corresponding %20 escape sequence.  But that's just a guess, I'm afraid.