In new update there is a lot of wasted space for the group by letter all that space and is...

as that original xbox account has the same name with a space your are done for, the new gamertag system does not take spaces into account and that old name is basically the exact same but with a space between letters which is not accounted for.

I think by "reserved" you mean "spaced." When someone spaces a gamertag, it "reserves" all forms of that gamertag, regardless of where any spaces are placed. For example there is a gamertag "G o l" but no such gamertag as "Gol." But if you try to create
the gamertag "Gol" the it does not let you because the letters G O L are already in a gamertag with no extra letters/numbers, just spaces.

Does that make sense?

I think by "reserved" you mean "spaced." When someone spaces a gamertag, it "reserves" all forms of that gamertag, regardless of where any spaces are placed. For example-, there is a gamertag "P il l" but no such gamertag as "Pill." But if you try to create
the gamertag "Pill," the it does not let you because the letters P I L L are already in a gamertag with no extra letters/numbers, just spaces.

Does that make sense?

Yeah, BK's in the forum are complaining that it wastes space... ironically, by posting that their wasting space.

Since when is a space a letter? So there are 27 letters in the alphabet?