As far as I know, spectate has always had some issues. When I first got the game, I couldn't spectate, and then a few days later, I could. I thought it was a problem, since my Wii is not NTSC J, but now spectate isn't on my roommate's Wii, also.
It could be that you have to unlock a certain number of characters, that it's on the second layer and the Wii doesn't read it right at first, that you have to beat or get a certain distance in SubSpace mode, but after a few days, it should appear. It did for me, at least.
Along with it, the WiFi Options menu should appear after you log on. If you can see that, you should have SubSpace mode.