CSPack encodes directory name with space to %20
The %20 only goes into the package, but not when deployed. Did you RDP to the Cloud Service Role to check whether the folder name is with the %20 or not? Because it seems, the %20 is only added to the package, but removed when unzipped. So your issue with restarting might be something else.
And by the way, the same applies for all non-URI characters, including Unicode characters that should go into the package. Which is imposed by the Open Packaging Conventions.