Some more info from the devs, that means this is still an open bug - so, while Texture space is described as modifying the Object space using the Material Tag, it doesn't actually "flatten" it to the UV space (as defined in the "Tag" section), but uses the still-3D Coordinates section from the Mat Tag to manipulate the noise (in 3D). That means it should stay a valid input for "Inside Mode", and it was the earlier 4 hf 1 that was correct, and the latest releases that have somehow lost the ability to use Texture mode.
We will investigate further! Meantime, swapping to use Object mode (and avoiding using the Coordinates adjustments in the material tag, which will have no effect in Object mode) will provide a workaround.
(Internal ID=448560107)