Windows makes \x00 a space?  How odd.

This is the result for me on linux:

Python 2.7.3+ (2.7:1f5d2642929a, May 25 2012, 12:47:34) 
[GCC 4.5.3] on linux2
Type "help", "copyright", "credits" or "license" for more information.
>>> test = "Hi there :)"
>>> print len(test), test
11 Hi there :)
>>> test = test.replace(" ", "\x00")
>>> print len(test), test
11 Hithere:)

Your comment on the last line of your example seems to have been truncated, so I'm not sure what you really saw.