Space Key is limited to 10 characters as opposed to the default 255

In the new space creation improvement introduced in Confluence 4.2.3 or higher, the spacekey field is limited to 10 characters only. When you create Space - confluence-URL/spaces/createspace-start.action the Space Key field is limited as seen in the HTML source:

<div class="field-group">
	<label for="key">
		Space key
		<span class="aui-icon icon-required"></span>
	</label>
	<input class="medium-field" name="key" maxlength="10">
	<a class="icon icon-info" href="#" id="space-key-info-link">Help</a>
</div

The SPACES.SPACEKEY column can actually hold 255 characters in the database side.

This has been fixed in Confluence 4.2.6. Hence the ultimate resolution is to upgrade to Confluence 4.2.6 or higher.