It doesn't take much imagination to see why spaces in filenames can cause problems. I think the big issue was spaces in the classpath during JSP compilation, but I might be wrong. Try putting JBoss in the "Program Files" directory and report back what went wrong. :)
Actually, I'm wondering if the problem will be gone in JBoss 4.0.2. We are using a new version of Tomcat that compiles JSPs differently. I'm thinking it might just work.