I don't think this quite fixed the issue.
I am currently running the version that this commit is included in and am getting a similar error
In my terminal, the command by the extension looks like

 cd /Users/myname/Library/Space\ Here/project ; /usr/bin/env /Users/myname/Library/Space Here/project/.conda/bin/python /Users/myname/.vscode/extensions/ms-python.debugpy-2025.4.1-darwin-arm64/bundled/
libs/debugpy/adapter/../../debugpy/launcher 57994 -- '/Users/myname/Library/project/subfolder/main.py'  

note the ' around the file name and folder(cd) but not the interpreter
env: /Users/myname/Library/Space: No such file or directory

Context:

(.conda) myname@mycomputer project % code --version
1.98.2
ddc367ed5c8936efe395cffeec279b04ffd7db78
arm64

Also, intrigued as to why there's another PR/commit related to this same issue: #385

@DavidTeju Do you have a #! at the beginning of your python file? I think this might be a different issue. The executable here actually comes from debugpy library. Something is going wrong with quoting in that library.

The way this works is, after you press f5 or launch debugger, the first thing we do is et path to python and launch the debug adapter. This is the python path that was fixed with this PR. After launching the debug adapter, VS Code sends the launch configurations to the adapter. The adapter based on the console configuration, either launches your code directly as a subprocess or sends a command back to VS Code to run it in the integrated terminal.

What you are seeing above is what was received from such a run-in-terminal request. I suspect something might be going wrong with quoting in there. Can you file an issue and if possible collect logs for debugpy with logTofile setting.