Description of problem:

# grub2-mkconfig -o /etc/grub2.cfg 
Generating grub.cfg ...
Found linux image: /boot/vmlinuz-3.1.9-1.fc16.x86_64
Found initrd image: /boot/initramfs-3.1.9-1.fc16.x86_64.img
Found linux image: /boot/vmlinuz-3.1.8-2.fc16.x86_64
Found initrd image: /boot/initramfs-3.1.8-2.fc16.x86_64.img
Found linux image: /boot/vmlinuz-3.1.6-1.fc16.x86_64
Found initrd image: /boot/initramfs-3.1.6-1.fc16.x86_64.img
  No volume groups found
Found Windows 7 (loader) on /dev/sda1
done
#

# grep "set default" /etc/grub2.cfg 
set default="Windows 7 (loader) (on /dev/sda1)"
#

Perform a "yum update" which contains a new kernel

# grep "set default" /etc/grub2.cfg 
set default="Windows7(loader) (on /dev/sda1)"
#

# cat /etc/default/grub 
GRUB_TIMEOUT=5
GRUB_DISTRIBUTOR="Fedora"
#GRUB_DEFAULT=saved
GRUB_DEFAULT="Windows 7 (loader) (on /dev/sda1)"
GRUB_CMDLINE_LINUX="rd.md=0 rd.lvm=0 rd.dm=0 quiet SYSFONT=latarcyrheb-sun16 rhgb rd.luks=0 LANG=de_DE.UTF-8  KEYTABLE=de-latin1-nodeadkeys"
#

Why does updating kernel remove the spaces in the default? Even running
grub2-mkconfig(1) does not break it.

Version-Release number of selected component (if applicable):
grub2-1.99-13.fc16.x86_64
kernel-3.1.6-1.fc16.x86_64
kernel-3.1.8-2.fc16.x86_64
kernel-3.1.9-1.fc16.x86_64

How reproducible:
Everytime, see above and below.

Actual results:
Kernel update removes spaces from default boot entry (and breaks default)

Expected results:
Non-broken behaviour like in good old times like with GRUB 1.