I tried your steps, and was unable to encounter your problem. I was able to insert whitespace into the text inputs without issue.
The problem may have been fixed in the Flash Player, SDK, or Builder, all of which have been updated relatively recently.
Do you know what version of the SDK and Builder you were using? You may want to try posting this to the Flex / Flash Builder forums and see if they have any more specific input to give.
Thanks a lot Bear for helping me, i've been dead in the water.
Am using Flash Builder Stand Alone 184.108.40.206292
Also just downloaded the newest version of the Adobe Air Runtime from labs.
Still seeing the same result, cannot use the space key inside the inputs in the itemrenderer when I run the air application.
Is the newest version of the AIR sdk included in FB 4? I saw the extra download link for it on the labs page.
Thanks a lot again!