Arch Linux

What if you make it acpi_os_name="Microsoft\ Windows\ XP"? Does it pick up the backslashes, or does it strip them?

Nope, gives exactly the same error.
I don't know very much about shell-scripts, but the problem must be in this line:
for cmd in $CMDLINE; do
then the line
export "${cmd}=y"
must try to do this: export "XP"=y"

This problem is more subtle than one would expect. The option acpi_os_name is passed to the kernel as "Microsoft Windows XP". The kernel recognizes it and acts upon it. However, now /init tries to parse the commandline, as it wants to interpret some of the options. The option acpi_os_name is not interesting for us, so we would ignore it.

However, /init parses the commadline word-wise, so now acpi_os_name="Microsoft is exported, then Windows=y is exported and then it tries to export XP"=y. It cannot handle quoting. I cannot think of a proper quick fix for the quoting, but I can provide you with a workaround:

Insert this line between line 21 and 22 in /lib/initcpio/init:
*\"*) ;;
Then regenerate your image with 'mkinitcpio -p kernel26'. Make a copy of your old image in case you break it. That is not a proper fix for the issue, it only ignores the XP" on the commandline and should make your system boot correctly, hopefully.

I wish there was an easy way to parse quoted params... I can't come up with anything either

I wonder if the following would work:
acpi_os_name=Microsoft\ Windows\ XP

Depends on how Linux parses the commandline parameters. It's worth a try.

We should still respect quoting when parsing the commandline, as Linux does it as well ...

Yes, this works and it shows a little effect on STR. Now the computer runs a few seconds before it reboots.
The first progress within years, perhaps I will get it working some day. ;-)

The question is, does Linux actually accept "Microsoft Windows XP" as acpi_os_name when using Aaron's method. Is there a hint in dmesg about it?

Oh, I overlooked your first post, brain0.
I tested acpi_os_name=Microsoft\ Windows\ XP

It doesn't recognize the whole string:
ACPI: Overriding _OS definition to 'Microsoft'
I tried to boot with your initcpio-fix, but got this:
http://mwd.bplaced.net/up/boot.jpg
I removed the acpi_os_name option and it worked again. I have no idea why!
PS: The Computer didn't suspend with the correct acpi_os_name either. :-(

That is too much weirdness for me now. I will have to experiment with this myself.

What's the status of this issue?

It works with
# acpi_os_name="Microsoft Windows XP"
now. I tested this at that time, too, but somehow it didn't prevent initcpio from parsing. Now it does.

However I didn't get Suspend working until now. The BIOS must be really buggy.