When you say space wallpaper do you mean one of the dynamic ones with the circles on, if so i have tried that and still cant see any difference, everything just looks normal too me.
It definitely all works on iPhone 4S. I can see both the dynamic wallpaper (set on lock screen here) and the parallax effect on the home screen. When you select the dynamic wallpapers, don´t you see the bubbles move about on the screen? Also make sure you have reduce motion turned off under the accessibility settings