Is Xur's exotic engram pre-selected?

You need to have a free engram space to buy or pick up any engram, even if it will decode immediately. That is the reason that you don't have enough space, it is not effected by your armor or weapon spaces until it has decoded, then it will go to postmaster if necessary.

This is pretty easy to test at the minute because umbral engrams are dropping so much. This is also the reason that you may not have ran into this issue before.

Engram capacity is 10, you can check you currently held engrams in the inventory screen. That is the right tab from your charcter screen, the one with your consumables etc.

It is a bit confusing because other drops that are just straight up equipment (not engrams) look very similar to engrams so you might not have noticed the difference before.