As part of porting Scott's fixes for http://jira.jboss.com/jira/browse/JBAS-3866 into common-1.x, I found out the org.jboss.util.FileProtocolArchiveBrowserFactory had also problem dealing with paths containing spaces, so I fixed that in both common-1.x and common-2.x
I got rid of the file->URI->file logic, it just seemed reduntant to me.
JBoss 4.2.x now boots from a path containing spaces.