I had some real problems getting german umlauts to work with PunBB. Tried everything that was recommended here like using latin1 (binary, multilingual and german version), posting with different browsers and selected a different charset in my browser. The characters either were replaced with question marks or, even worse, the message was simply cut off at the first umlaut.
I finally just used UTF8 General for my MySQL database, set PHP's default_charset to utf-8 using ini_set() and replaced any trace of iso-8859-1 with utf-8 in the PunBB source. I haven't observed any problems at all. There have been some remarks about regular expressions within PunBB that might fail but I have yet to see anything happen (not that I'd tried the full chinese kanji set yet 
)
The details about what I have changed as well as a modified 1.2.12 setup including the TinyMCE modification as explained in the TinyMCE Forums might not work properly but shouldn't introduce any vulnerabilities) can be found on my page
HowTo: PunBB with TinyMCE in UTF-8
Thanks for the great forum software!
-Markus-