this happens in X and on tty1 if I run gpg --gen-key, when I get to this part.. You need a user ID to identify your key; the software constructs the user ID from the Real Name, Comment and Email Address in this form: "Heinrich Heine (Der Dichter) <heinrichh>" it won't let me enter spaces at all. It will only accept me entering my name as DaveJones instead of "Dave Jones" for example. This is true of other text input fields too. The 'reason' in the revoke-keys command does the same thing.
I just noticed the same thing happens in gdb, so this is probably a bug in readline.
oh, duh. my fault. I had a crappy .inputrc