This is not a bug. You are attempting to enter an absolute URL, when the field is designed to accept a relative path. In your example, the full URL would be:
http://www.yay.com/www+yay+com/
We use the URL override extensively on this site, and can confirm that it's working as designed. You would also need to modify your .htaccess file to take advantage of the changes made to this field. This is discussed in the Admin Help (?) and the rules can also be obtained by using the Mod Rewrite Generator in VaultWiki > Initial Wiki Setup.