Spaces for select one choice names will generally work but it's not best practice. It's fine 99% of the time. When I worked for Esri Aus tech support, every now and then there was an issue tied to this. Users would get frustrated as Survey123 gave warnings everywhere else but not this column, so they felt caught out.
The documentation places a hard limit on multiple choice for spaces and commas. Survey123 Connect will throw an error if you have this. Documentation otherwise recommends you should not use spaces or special characters. So it's more a warning than an error.
There's a lot of things that are OK, until they're not. For example, the 30 character limit on field length is OK in ArcGIS Online but not when you go to enterprise. There wasn't a warning for it in the XLSForm for a long time.
I wouldn't worry about it too much but it's definitely worth highlighting in a discussion about choice names. May as well adopt best practice now.