I've run into a strange, and very recently introduced issue. It seems that a paper-input element inside a paper-icon-item no longer permits a 'space' in its entry. I have no idea why that is the case only inside a paper-icon-item, but here is the reproduction of the issue:
The issue has been reported in Github repo here: github.com/PolymerElements/paper-item/issues/28
Also note that due to paper-item recently having button behaviour, it has caused other issues like tab-indexing, wherein the paper-item (or paper-icon-item) is now receiving focus on tab, rather than the paper-input inside of it.