Just did a bit more testing…
If I ONLY use space bar (i.e. launch the game, then use space bar to toggle inventory mode on/off), everything works perfectly.
While in inventory mode, the mouse cursor is restrained to the window, but when I toggle back to normal mode (with space bar), everything works just as when I launch, perfectly.
As soon as I right-click to toggle, it becomes screwed up like I described.