The latter. Tokenization can allow spaces, but the tokenized data in $1- in an event or alias call is tokenized by spaces. You could retokenize by using:
/tokenize N $rawline
Where N is the ASCII value of some character (32 is space, for reference). Then $1- is filled with those tokens. Basically, mIRC calls /tokenize 32 $rawline internally before your event runs. Notice that the script above does this retokenization by spaces in order to strip colour codes from $1-.
