Strictly speaking, you never answered my request, which was "a link to a live site showing this issue to see the actual URL being generated". This is a must for me to continue with any analysis.
Answering your comment about the urlencode/rawurlencode concern, in short, urlencode is non-standard and there is no reason to use it nowadays.
Using rawurlencode does not leave a space, as you implied, but rather replaces it with a %20. If that is not happening, then there is another issue, which is unrelated to this (most likely, a plugin or a corehack intefering with the URL generation).
So if you can show me the live page, I will confirm if this is the case or not.