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Assuming your workspace is in a folder that contains whitespaces i.e. C:\Dokumente und Einstellungen\huebnede\Desktop\eclipse\workspace Create new project using Xtext Project Wizard. Generated project now appears in the C:\Dokumente%20und%20Einstellungen\huebnede\Desktop\eclipse\workspace\ folder.
fixed in HEAD
Closing bug which were set to RESOLVED before Eclipse Neon.0.