Perhaps there's some special and terrible hack in there somewhere that says, if you try and execute a command called "C:\Program", and that file doesn't exist, and the command's first argument starts with "Files\"
Not quite. Watch it with Process Monitor.
Given "C:\Program Files\Foo\Bar.exe", it tries:
"C:\Program" "Files\Foo\Bar.exe"
That fails, so it tries the next one, which works. There's nothing special about "Files\", or "C:\Program", for that matter.
I'm not sure what it does for "C:\Program Files\Foo\Bar.exe baz quux"...