String Comparison / Embedded Spaces

Does the PostgreSQL string comparison operator remove embedded spaces in
a string before comparing?  Here is a query I'm issuing (notice the
space between A and C in the first string):

select version();
select ('A C' < 'AB') as result;

the result that comes back is:

version

-------------------------------------------------------------------------------------------------------
PostgreSQL 7.3.3 on i686-pc-linux-gnu, compiled by GCC gcc (GCC) 3.2.2
20030222 (Red Hat Linux 3.2.2-5)

result
------
f

I searched the list archives and could not find a mention of this.
Shouldn't the result of the comparison be true, not false?

--
Ken Schenke