You shouldn't need to hold the spacebar, and you should also make sure you aren't currently clipping into anything, like the ground. If you're below the ground or inside other scenery it won't work.
I always try to be fairly close to the ground before I hit spacebar so I wonder if that has...
To he who was asking how Fly Mode works: After you've moved around and want to put your character in the place your camera currently is, press spacebar to put your character on the ground, and THEN exit fly mode.
You can put yourself onto some great sniper points to hunt bears from with this. :)
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