Following Ari's post, I have cut and pasted an article I wrote for a local publication some time ago on this very issue. I think it sums up this issue and the various shittos. I also suggest Rav Yonason Hershlags kuntres on this topic called "stumah shebestam".
The different ways of forming the"Hefsek Parshas Stuma" in tefillin parshiyos.
There is a common misconception that the only difference between the different minhagim (customs) of tefillin parshiyos is the ksav (font) they are written in. For example if a person is Sephardic, the ksav will be "Vellish", a script that is unique to Sephardic Jews; If one is of traditional Ashkenazic and non-Chassidic background, then he would usually get the "Beis Yosef" script; If one is "Chassidic", he would get the "Arizal" script, etc.
While this is correct, there are also different opinions and minhagim on how to make the spacing between the parshiyos of the tefillin. (In particular the paragraph spacing between the last two parshiyos of "Shema" and "Vehoya Im Shemoa".) In halachic literature, this "paragraph space" is commonly called the "Hefsek Parshas Stumah".
The fact that there are different opinions on how to make the Hefsek Parsha Stumah in tefillin is less known and far more serious than people realize. Ignorance in this subject can cause a person to purchase a pair of tefillin that are not correct for his particular custom. Furthemore, incorrect paragraph spacing may even render the tefillin possul, for certain people, as explained below. Unfortunately many vendors of tefillin are themselves either ignorant of or indifferent to the different opinions and customs of Hefsek Parshas Stuma. Sometimes the discrepancy will not be picked up for many years and will only be brought to the owners attention much later during a routine tefillin examination.
A common example of this would be someone who follows Chabad practices and buys tefillin written in the ksav of the Arizal. While he has done correctly and purchased the correct ksav, he may not realize that the Hefsek Parshas Stumah is like that of the commonly followed opinion of the Taz. However the Shulchan Aruch Harav / Admur Hazaken does not follow the Taz's ruling and in many instances a smaller ''Taz" space would actually be seriously problematic according to the Shulchan Aruch Harav. (Many Chassidic yet non-Chabad sofrim write Arizal with the paragraph spacing like the opinion of the Taz . It is possible to form the paragraph spacing in accordance with the opinion of the Taz in a way that is kosher (בדיעבד) according to the Shulchan Aruch Harav, as explained further in this article, yet often this is not the case.)
In the course of this article I will explain the different opinions on this matter as well as outline the various minhagim. I will also attempt to clarify some seemingly contradictory opinions within the Ashkenaz tradition. Finally, in the last section I have added my own practical insight on this issue.
Why is there a paragraph space and what should it look like?
Many people familliar with the laws of writing a sefer Torah know that there are two different types of parshiyos in the Torah which are written with two different types of paragraph spacing. One type is called a "Psuchah" (an open parsha) and one is called a "Stumah" (a closed parsha). The role of the different types of paragraph spacing is to distinguish between different topics in the Torah. (A Psucha means that the parsha is talking about a different subject to the previous parsha, whereas a Stumah indicates that although it is a new parsha, it is still talking about the same topic as the previous one.)
This concept of paragraph spacing (Hefsek Parshas Stumah and Hefsek Parshas Psucha) is brought down in גמרא (both Bavli and Yerushalmi) and is one of the fundemental laws of safrus. However the גמרא does not spell out exactly how to make the paragraph break, it only hints at the concept. Therefore there is much debate between the Rishonim on how to exactly make the hefsek (paragraph space).
The two opinions brought down in Shulchan Aruch are that of the Rambam and the Rosh , and these two opinions are contradictory. (The Rambam describes three ways of making a Stumah, and two ways of making Psucha. One of the Rambam's Stumahs is considered Psucha according to the Rosh, and one of the Rambam's Psuchas is Stumah according to the Rosh). However there is a way to make both the Hefsek Parshas Stumah and the Hefsek Parshas Psucha in a way that satisfies both opinions. For a Psucha parsha this is done by ending the first paragraph in the middle of the line, leaving a blank space of at least nine letters or larger until the end of the line and then starting the next parsha at the beginning of the next line (see fig 1). For a Stuma Parsha, this is done by completing the first parsha at the beginning of the line, then leaving a space of at least nine large letters and then commencing the second parsha at the end of that same line (see fig 2). This is the exact format we use to write sifrei Torah today, and is universally accepted as being kosher according to all opinions.
Paragraph Spacing in Tefillin
Although there is a clear and universal way on how to write the paragraph spacing in a sefer Torah, this is not, however, the case with tefillin. This is because the tefillin parshiyos are four separate parshiyos from different parts of the Torah (chosen because they make reference to the mitzvah of tefillin). The first three parshiyos are Psuchos in the Torah, therefore there is no problem; all opinions are in agreement that they are written as such in the tefillin. The problem is with the fourth and last parsha, "Vehoya Im Shemoa" (which is actually the third parsha in Rabbeinu Tam Tefillin). Here we have a difference of opinion between major Poskim .
The reason for the argument is that although the parsha of "Vehoya Im Shemoa" appears in the Torah as a Stumah, yet because it does not directly follow the parsha of Shema(and there are Psuchos in the Torah between the two Parshas) there is an argument that we should make the parsha of Vehoya Im Shemoah as a Psucha as well. It is this argument  - of whether or not the parsha of Vehoya Im Shemoa is a Parsha Stuma or a Psucha - as well as a difference of opinion on how exactly to make a Stuma / Psucha in tefillin, that result in the different opinions and subsequent minhagim that we have today in tefillin.
I would like to add at this point that a very practical Sefer called "Hastumah Shebestam" has recently been released that exclusively deals with the issue of the Hefsek Parshas Stumah in tefillin. The sefer was written by Rabbi Yonasan Herschlag Shlitah, and in his sefer (the only one I know of that deals exclusively in this subject) he brings a vast amount of information. Obviously this article is very simplified, however for more detail on any of the issues mentioned here, I strongly suggest referring to his sefer, (which is actually available for purchase here in Melbourne).
Halacha Lemaasah: Which opinion is right for me?
For some, this question is more important than for others. For example, for Sephardic Jews, tefillin are considered possul if the paragraph spacing is formed in accordance with certain Ashkenazic opinions. Similarly, certain Ashkenazic ways of forming the paragraph spacing is highly problematic (חשש פסול) according to the Shulchan Aruch Harav, which means that Chabad Chassidim must be more vigilant in this issue than the followers of the Mishna Berura and the other Ashkenazi poskim, who are more accepting of the different opinions.
Let me start off with the most rigid, namely that of the Sephardic custom. Although this custom is in all likelihood relevant to only a very small percentage of the readers of this article, I am listing it first because it is the most critical in terms of the kashrus of the tefillin. I explained earlier that this whole debate stems from a difference of opinion between the מחבר and the רמ"א. Since Sephardim usually follow the מחבר (and not the רמ"א , who's opinion is the source of this whole debate) there is no question that: a) parshas Vehoya Im Shemoa is a Stumah and b) the מחבר clearly says we do a Stumah like the Rambam. Therefore Sephardim unanimously follow the opinion of the Rambam. This is to leave either a very small space at the end of the parsha of Shema of less than nine yudin (or even none at all) and then to leave a space of nine large letters at the beginning of Parshas Vehoya Im Shemoah (see fig. 3).
Now for those who follow the customs of Chassidei Chabad, the הלכה למעשה here is clear cut as well, since the Shulchan Aruch Harav / Admur hazaken  rules clearly thatלכתחלה a space of nine large letters (3 X the word אשר) should be left at BOTH the end of the paragraph of Shema and the begining of the paragraph of Vehoya Im Shemoah (see fig. 4). בדיעבד a space of nine yudin is acceptable . However if both sides have less than nine yudin, even if there is a combined total of more than nine yudin, this is very problematic, even בדיעבד. (see fig. 5). This is very important, as Parshiyos written with the paragraph spacing according to certain interpretations of the Taz (such as the interpretation of the Mishneh Berurah outlined below) would be extremely problematic according to the Shulchan Aruch Harav / Admur Hazaken.
(I should note at this point that Rabbi Moshe Veiner Shlitah (author of the sefer "Osiyos Harav") has told me on several occassions that Rabbi Zalmen Shimon Dwarkin Z"L (perhaps the most recognized Chabad posek in recent history) ruled that since so much of the Jewish world today follows the Mishneh Berurah's interpretation of the Taz, even though it is highly problematic according to the Shulchan Aruch Harav it cannot be ruled as outright possul. However having said that, my personal policy has always been that when checking tefillin belonging to a Chabad anash , if I encounter a Stumah Taz like the Mishneh Berurah of less than nine yudin on each side (fig. 5) which happens more often than people realize as outlined in my introduction), I feel obligated to bring this matter to the attention of the customer and strongly suggest they discuss this issue with their rav.)
Outside of the Sephardic and Chabad worlds, this issue is far more flexible. While there still are different minhagim both within Ashkenaz and amongst the various Chassidic groups, no one outside Sephardic Jewry and Chabad Chassidim will actually “passel” any of the other accepted opinions. So this issue is therefore less critical to much of Ashkenaz Jewry, however there still are different customs which I will attempt to outline below, and it is still important thatלכתחלה one follows his appropriate minhag.
The majority of both Chassidic (non-Chabad) and non- Chassidic Ashkenazic Jews follow the opinion of the Taz . However the Taz's opinion is interperted in two different ways. The Mishna Berurah says that the spacing according to the Taz is less than the space of nine "small / yud sized" letters at the end of the paragraph of Shema and less than nine "small /yud sized" letters at the beginning of the paragraph of Vehoya Im Shemoa. However there must be a total of more than nine "yud sized" letters (between both spaces - see fig. 5). The Igros Moshe  says to leave less than nine large letters at each side, and that in combination it must total at least 9 large letters (see fig. 6). This is obviously a larger space than what the Mishneh Berurah describes.
Although in "Pre-war Europe" the most popular way of writing the Taz was how the Igres Moshe describes, today many more Ashkenazim are following the Mishna Berura's interpertaion of the Taz. This is primarily because most noteworthy "Lithuanian" (Litvishe) Poskim today rule in accordance with the Mishneh Berurah's interpertation of the Taz in this matter. It is therefore no surprise that the predominant Litvishe custom is like the Mishnah Berura's interpertation of the Taz. Others who strictly follow this custom are Hungarian Jews (including Satmar Chassidim). The reason for their following of this custom is that it is the one favoured by the Keses Hasofer who was of Hungarian origin.
Those who's custom is like the Igres Moshe's interpertation of the Taz include many Chassidic groups including Viznitz, Belz and Bobov, as well as many Gerer and Karliner Chassidim. They do so because they have specific kaballah from their respective "chain of sofrim" over the generations. A percentage of non-Chassidic Ashkenaz Jews today also follow this interpretation of the Taz, however they are no longer the majority as they were before WWII.
Besides for the two ways of interpreting the Taz listed above, there is still a strong percentage of Ashkenazic Jews that follow the opinion of the Rambam. This custom has gained popularity in recent decades, particularly amongst Chassidim, because it is the method employed by Harav Menachem Dovidovitch shlitah, perhaps the most prominent Sofer of the post WWII era. (However Reb Menachem's Rambam space is more compact on the side of Vehoya Im Shemoah than a traditional Sephardic Rambam space. Rabbi Hershlag told me that he heard from Reb Menachem that he does the nine letters בצמצום (compacted) so that he can keep the ראשי השיטין (words that are supposed to be present at the start of each line) without squashing letters).
Finally, and just to throw another spanner into the works, several non Chassidic contemprary poskim such as Rav Moshe shternbuch Shlita, (although a minority opinion amongst the Litvishe poskim in this regard) strongly encourage the method of the Rambam and do not follow either of the two interpretations of the Taz.To summarize, Sephardic Jews and followers of Chabad have to be the most vigilant in this area of Hilchos Tefillin, because according to both these groups, a deviation of their prescribed minhag could actually render the tefillin possul according to their respective poskim. However for the majority of Ashkenazic Jews, no matter which recognized style of Hefsek Parshas Stuma they may end up with (including minhag Chabad), the Tefillin are still considered kosher according to all Ashkenazic poskim. However לכתחלה, it is still recommended they speak to their personal sofer or rav before purchasing tefillin so that they find out exactly which of the three predominant Ashkenazic customs practiced today (Taz - Mishnah Berurah, Taz - Igres Moshe or Rambam) is right for them.
The advantage of Ashkenazic sofrim writing Arizal script like the opinion of the Taz as interpreted by the Igres Moshe
I have discussed this personally with a number of the moire horoah of Vaad Mishmeres Stam and they agree that in theory, it is better that sofrim who write standard / generic Arizal for the general market (i.e. sofrim who are not writing for any once specific group such as Chabad, Belz, Satmar, etc) follow the opinion of the Igres Moshe when it comes to making the Hefsek Parshas Stumah.