When a directory includes spaces (and likely other characters) in its name, the ~/.gtk-bookmarks file ends up with %20 and other URL encodings in the URL. These are displayed literally in the drop-down menu. 

(thanks to Martin for finding this)

A work-around is to, in Thunar, right-click on your bookmark, click rename, and hit enter. This explicitly adds a user-defined name to the bookmarks file which does not use URL encoding. 

I intend to have this fixed for the 0.1 release.