I always thought it was spelled Ryou, because I like how it's pronounced that way (I'm british, not japanese or american) Lol I just prefer it sounding more ree-oo than rio, even if it's wrong! Cause personally I just think it's cuter ^-^
It's Ryou, technically. An "u" sound after an "o" sound just lengthens the "o" sound, so it's still pronounced the same but the sound at the end is longer than it would be if it were just "ryo". Make sense? Hopefully. It's also sometimes romanized as Ryō.
Ryou does not make a "you" sound. Ever. It annoys me when people say it like that. ^^' All it is is a matter of romanization.