There is a rich literature on space in videogames.
(non-specialists should start with M. J. P. Wolf’s The Medium of the Videogame—and the two readers on videogame theory he’s edited with B. Perron).
But how much of this is relevant to urban space specifically, and not merely to space in the abstract?–the answer: some, but not enough (yet).
Which only makes work by Michael Nitsche, for example, stand out more. His book Video Game Space: Image, Play and Structure in 3D Game Worlds with MIT Press even references urban theorist Henri Lefebvre. Here’s a brief online review.
Another book Space Time Play. Computer Games, Architecture and Urbanism provides a number of articles that suggest a dialectical relationship between videogames/digital representation and the practice of urban planning itself. The Introduction to the book can be downloaded here.