I have done a bit of testing, and as long as I preceed the double quotes in the filename with a backslash in the dos commandline things seem to work. I think this problem actually got fixed in May 2006 with this change:
http://trac.osgeo.org/gdal/changeset/9675
I would appreciate it if either of you could re-test this with a recent FWTools and ensuring you prefix the double quotes with backslashes if you are doing this in the FWTools shell command window.
I'm tentatively closing this as fixed, but just re-open if it isn't fixed.
