The most important thing is less the UI elements like the form, but the copy you use to present the idea of the passphrase. When the user signs up, explain the idea of a passphrase simply and give them the benefits:
- It's Secure: Harder to steal than a short, complex password.
- Easy to remember: It's just like a sentence, but secret.
Don't overwhelm them with technobable. Write your copy using benefits first and have a short follow up explaining why you get the benefit. If you say you have RSA 512 security most people won't know what that means. If you say you have Bank Level Encryption: AES 256 you let everyone know the benefits, but you list the technical detail so that unconvinced or technical users can check your facts. Find some good resources on Passphrase creation and security; summarize their points and link users to them.
Give them some tips about passphrase generation; tell them to make it long but easy to remember. A full sentence using proper nouns, especially from fiction. Dictionary words are risky but can be included in a successful passphrase to make it make sense.
I'd almost suggest showing them this comic:
But that would likely end up in "correct horse battery staple" being your most common password after "password".
Consider a password strength analyzer like How Secure is my Password shows, explaining the password's strength in understandable terms:
Showing the spaces seems like a novel idea, assuming the password input area were long enough. Traditional password fields are very short, and length is generally ignored as the characters are blocked out anyway. If you choose to show spaces you can actually help the user track where they are.
Spaces don't add entropy in passphrases but spaces should be encouraged, in combination with a scheme of showing them to the user can help them keep track of where they are in the passphrase. Spaces might not yield more security but they increase memorability and make the passphrase feel natural to the user.