Yea I have similar problems, after update from RC3 to RC4 my german umlauts are neither displayed properly nor accepted in input fields anymore.
The following error similar to (this thread) also encountered (I guess with umlauts in my department key fields) and mysql upgrade will not work as I already have mysql 5.2 :
Illegal mix of collations (latin1_swedish_ci,IMPLICIT) and (utf8_general_ci,COERCIBLE) for operation '='
I fiddled around with mysql collations reimporting the tables with unicode collations now it works...
I added in apache2.conf:
AddDefaultCharset UTF-8
In Mysql I set:
MySQL charset: UTF-8 Unicode (utf8)
MySQL connection collation: utf8_unicode_ci
ost - Database collation: utf8_general_ci
I exported and reimported all ost tables to set them to utf8_general_ci
Now anything works.
Cheers, Markus