I am forcing lower case but you can override that with these config settings:
<add key="ForceLowerCaseForFolderCreation" value="true" />
<add key="ForceLowerCaseForUploadedFiles" value="true" />
by changing to false. The reason I make the lower case is in case you ever later wanted to move the site to linux/mono/apache hosting where file names and urls are case sensitive.
I don't have a solution about the spaces other than you could just use FCKeditor. Or maybe you could modify the Flash to replace dashes with spaces for display.
Hope it helps,