I've been using iTerm as a replacement for OS X's Terminal.app and have been quite impressed with its many cool features (for instance, a throbber when a tab is generating output). I had one problem though. I couldn't view UTF-8 characters correctly. When I tried, I got something like this:
viel Glück mit der Website
After several days of intermittent poking around, I discovered a fix. Visit "View > Show Session Info." On the "Session" tab, change the "Encoding" to from "Western (ASCII)" to "Unicode (UTF-8)". Now I see this:
viel Glück mit der Website
I briefly tried Terminator because it showed Unicode for me out of the box. I switched back because I didn't like the way tabs were handled. Now that Unicode works, iTerm is practically perfect.