Apparently there is a bug in disable the ctrl space with the language bar in windows 7. This bug has existed ever since Windows XP era. The problem was that the options in keyboard advance settings to disable the hotkey is bugged. When you click the check box to disable or change it into a different hotkey, after you click ok, it will revert back to the original state.
Finally found a solution.
- open "regedit.exe" in run dialog
- Browse the registry editor to the location: HKEY_CURRENT_USER\Control Panel\Input Method\Hot Keys\
- Now delete registry entries that with the name: 0000007x (x indicates any number)