I have no problem with swedish characters and UTF8:
Code:
user@linux:~> echo $LANG
en_US.UTF-8
user@linux:~> ÅåÖöÄä
(I wonder if the characters appear on your screen as well, but I can see them. Trust me
)
If you want to change the system language (e.g. in YaST or KDE), make sure you have the translations installed.