Both the checkbox and radio button formatting don't interpret those dashes. The dashes are only seen in pop-up lists and pop-up menus. However, blank lines will put spaces in between your values, so you can visually separate your values by creating blank lines.
If you don't mind managing multiple value lists, you can:
1. break up your single value list into multiple value lists,
2. place multiple instances of the same field on the layout and
3. assign a different value list to each instance of the field.
This would give you more control over the grouping of value list items and spacing.
Peter's method is my preferred method with Radio/Checkbox on IWP pages. However this is only "easy" (relatively) with short custom lists. It will not be possible with variable field-based value lists.
if 100's of items, it would probably be my decision to use a scrollable portal "pick-list". I wouldn't even use the drop-down/pop-up for that many items. the use of checkboxes implies many items could be selected and a pick-list could do that by setting a field with each value selected (into a global field, perhaps).
OP might search for dwindling value lists, though I have not tested any with IWP.
Scottworld, I don't need dashes and spaces would be fine between categories. Unfortunately neither using hyphens, blank returns or even spaces creates a gap. Everything just runs together on the published file.