Hyphens in arguments and custom url rewrite

I'm feeling very stupid and frustrated trying to configure a panel page with a view and their arguments.

I am using Panels 3 with Views to in Drupal 6.20

--The Panel--
I am trying to create a panel which takes 2 taxonomy arguments:
Argument: /software/%product/%host

Both arguments potentially have hyphens in the URL, e.g. Final Cut Pro -> final-cut-pro

--The View--
I have the 2 taxonomy arguments, which are required. Thus:

Action to take if no argument is present: Hide/404

Validator 1: Taxonomy term: Product vocabulary
Validator 2: Taxonomy term: Host vocabulary

Argument type: Term name

Action to take if no validation: Hide/404

Case: Capitalize each word

Case in path: Lower

--URL rewrite--

I have implemented custom_url_rewrite_inbound:

function custom_url_rewrite_inbound(&$result, $path, $path_language) {
  if (strpos($path, "software/") === 0) {
    $result = str_replace("-","+",$path);
  }
}
function custom_url_rewrite_outbound(&$path, &$options, $original_path) {
 if (strpos($path, "software/") === 0) {
   $path = strtolower(str_replace(" ","-", $original_path));
 }
}

***The problem***
As is, I get urlencoded + signs in the URL ( final%2Bcut%2Bpro )
If I try on the outbound URL to rewrite:

$path = strtolower(str_replace("+","-", $original_path));

I get a redirect loop.

I would be ever so grateful for assistance!