^ I don't know if this is what Brit is talking about - as I mentioned, we use Word around here - but some word-counting utilities count words by counting total characters (which includes everything, including spaces, commas, etc.) and dividing by something or other (five maybe - whatever the length of the "average" English word is determined to be). If that is the kind of program she's talking about, yes it would include spaces, but it isn't inflating anything. It's just a different method of counting words. Each method has its strengths and its weaknesses, I assume - I've never compared them, but that makes sense to me.
The alternative to using a program would of course be a human being counting. each. word. and. who. would. want. that. job?