How to change the escape style when dropping paths into Terminal
I can confirm that iTerm2 does exactly what you want in regards to enclosing long file names and directories with single quotes instead of escaping the spaces when dragging and dropping.  It does this by default.
There are many additional reasons and benefits to switch to iTerm2 from the default Terminal on macOS.  Far too many to list here.
Update for iTerm 3.4
iTerm 3.4 changed the escaping behavior to use backslash escaping as well. However, there is an advanced experimental feature Escape file names with single quotes instead of backslashes. that reverts the escaping back. The comment even specifies my very use case: This is intended for users of xonsh, which does not accept backslash escaping.