Content can not be created in the Root Space. The fact that the allowed content types is being displayed on the community settings page is a bug. This bug has been fixed for 1.0.3 which will be released this week.
The main reason for the Root Space is to serve as a place to setup global space permissions, settings, etc. The name and description of your entire community comes from the root space. A standard set of permissions that will be inherited by all subspaces is defined here. An end user should never be aware of the Root Space, as everything they are interested in is a child of the Root Space.
Hope this makes sense.