It seems that some external auth methods (ldap and db at least), assume that data is coming in utf-8 and, under 1.5.x, it's converted always to iso-8859-1, via utf8_decode().
I think it would be great to add a new setting to each authentication method to be able to specify the encoding of the data retrieved from the external system and then convert it to:
iso-8859-1 if we aren't running under unicode mode.
utf-8 if we are running under unicode
Only for 1.6 and up, of course.