The "million dollar space pen" is an urban legend

The story is debunked at io9:

There's a famous legend that America spent millions on the development of a 'space pen' that writes upside down, while the Russians used a pencil. Here's the truth behind the legend. In fact, the Space Pen was developed by a private company and sold quite cheaply to NASA for space flights as part of a marketing gimmick. The Soviets, by the way, used them too...

In actuality, pencils were a terrible implement to use inside a space ship. The tips could break, sending debris into instruments. Even if the tips were tough, the pencils eventually required sharpening. And pencils burn, which is never good in space. A pen was a more practical instrument...

Fisher offered the Space Pen to NASA for a low price of $1.98, and soon it was flying on missions with astronauts. Which is exactly the kind of marketing that Fisher wanted. The Space Pen caught on, and is still sold, although other companies make other pens based and marketed on the same principle. The Space Pen was so popular, that the Soviets took notice, and carried the design on their missions. However, the idea that America likes its shiny toys and its wasteful bureaucracy, while the Soviet Union was a model of lean efficiency was popular, and the Space Pen/Pencil story caught on.