dwzemens, i had similar problem… and was going to post if there was a solution, but found it by doing one little change.
you dont need any additional code in functions.php, like you’ve and otto tried earlier, but what you can do is, go to widgets.php which is under wp-includes, and search for nbsp, you’ll find one of the php functions where it states when title is empty pring “ ”, so just take that out of the quotes, save the file, and thats it!
i feel like a genius. Cheers.