> You're just going to hash it anyway

Wow, you're optimistic :)

I remember when I started out with SQL databases, someone managed to hack the site using SQL injects. So I made a SQL sanitation function, but soon enough someone complained that they couln't have escape characters in their password. =) Now a days I always use a library that parameterize all SQL variables to avoid SQL injections.

Does it matter? I mean is there another way of entering this string which preserves the spaces, or is deleting them just part of the hash function?

Yes, you can paste a string with internal spaces. I guess you can also disable JS and type whatever you want. Passwords with spaces work absolutely fine, too - it's just the signup form that is broken.

They probably had to many people accidentally copy-pasting strings with spaces into the form. Like the good old "double click to select a word" also picking up the space after the word.

The reason I can empathize with your complain is it being highly unlikely they are able to keep those restrictions consistent across all password forms & login methods.