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I'll see what I can see. For what it's worth, the nbsp being changed to #160 when editing in book view is the expected behavior of 0.7.4. The decision to convert non-breaking space characters and named entities to the #160 numeric entity was just about the sole reason for releasing 0.7.4, in fact.
Obviously, the conversion of those #160s to normal spaces when creating a TOC (under certain circumstances) is an unintended side effect. I assume you mean generating the ncx toc rather than an html toc?
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