HN isn't: your browser is. Runs of whitespace are collapsed in HTML to single spaces unless specifically styled otherwise. You can verify that they're there by viewing the page source.
No, they wouldn't collapse that: non-breaking spaces aren't considered whitespace in HTML. The side effect of that is that if you copy some text with non-breaking spaces, you'll get non-breaking spaces, so something that looks as if it contains spaces won't necessarily behave as such. In HN, if you need to quote something where space is significant, you're best off formatting it as a preformatted block by indenting it:
Here is some preformatted text.
It might break up the flow of the text, but if something like whitespace is significant, that's probably a good thing.
