This is the first time I’ve encountered this issue.
I am unable to reproduce the error you are having. I have tested creating new users with spaces but the link that points to the author page works just fine.
author name = Ron Angelo author url = author/ron-angelo/
WordPress automatically adds hyphen to the author url which is the expected behavior.
Have you recently installed plugins? Have you edited the Database?
You mentioned that other themes support this. Have you tried temporarily switching to the default theme(TwentyTwelve) and test if the author urls are working?
If deactivating plugins or changing themes doesn’t fix the issue then this may be a problem with an entry on the database which can be corrected.