I have done some testing of this with both values for the from, I'm able to receive both without issue. I made sure to perform this test with UE 3.0.6. This tells me that UE is sending the email appropriately but that your mail client may be blocking the email with that as the from.
Do you have a way to test this with your own emails? If so you should perform a couple of test with your own email addresses. The first would be the known working from with the initials, then test it with the full 'from' title. If you do not see the email check your junk mail and spam folders to see if it got in there by accident. I think this is the most likely cause of the problem for your users not receiving the email messages.