That's because spaces are not allowed in request URIs, and since nginx 1.21.1 these are rejected. Quoting CHANGES:
*) Change: now nginx always returns an error if spaces or control
characters are used in the request line.
See ticket #196 for details.
Your configuration results in incorrect URIs being used during proxying, as it uses named captures from $uri, which is unescaped, in proxy_pass, which expects all variables to be properly escaped if used with variables.
As far as I can see, in your configuration the most simple fix would be to change all proxy_pass directives to don't use any URI components, that is:
location ~ "/width/(?<width>\d+)/(?<image>.+)$" {
proxy_pass http://localhost:8888;
proxy_cache thumbnails;
proxy_cache_valid 200 24h;
}
This way, nginx will pass URIs from the client request unmodified (and properly escaped), and these match URIs you've been trying to reconstruct with variables.
Hope this helps.
