But then, what is the "Android" tab in the  JavaBuild options for ?
That is the Android SDK location where SlickEdit will look to find Android tools (
android.bat, 
ddms, etc.) and also where it will look to find the platforms you have installed for your Android builds.  This location is stored in your project as the 
sdk.dir property in the 
local.properties file.  If you change this location in SlickEdit, SlickEdit will update that property for you.
And why does it reformat the path so badly?
After looking into this for a while...I'm not sure 

.  When you change this property, SlickEdit will update your project so that it is properly configured for the new SDK directory.  I remember seeing that when we would update the project it would reformat paths with spaces (if the SDK was in a path with spaces) to the 8.3 equivalent directory...but I previously thought it was the 
android.bat tool which was doing this.  I've been testing this though, and it doesn't appear to be the case.  For some reason when we are executing the command from SlickEdit, it is reformatting the path string...and when I run the same exact command from the command line it is not reformatting the path string.
I've fixed one bug where we might have thought the SDK directory had changed even if you didn't change it...but I am still looking into why when updating the SDK directory to a path with spaces the path is being reformatted as you are seeing.  I'll keep you posted.
- Ryan