Wow, thanks a ton! You are my hero, you saved me. I had setup everything (SQL tables, collation, web server default charset, configurations in php files) to use UTF-8 and I still got scrambled Umlaute in the Paypal Express Checkout dialog. This fixed it! I also applied it to the customers name/address information (lines 650-655)
$params['PAYMENTREQUEST_0_SHIPTONAME'] = utf8_decode($order->delivery['firstname']) . ' ' . utf8_decode($order->delivery['lastname']);
$params['PAYMENTREQUEST_0_SHIPTOSTREET'] = utf8_decode($order->delivery['street_address']);
$params['PAYMENTREQUEST_0_SHIPTOCITY'] = utf8_decode($order->delivery['city']);
$params['PAYMENTREQUEST_0_SHIPTOSTATE'] = tep_get_zone_code($order->delivery['country']['id'], $order->delivery['zone_id'], $order->delivery['state']);
$params['PAYMENTREQUEST_0_SHIPTOCOUNTRYCODE'] = $order->delivery['country']['iso_code_2'];
$params['PAYMENTREQUEST_0_SHIPTOZIP'] = $order->delivery['postcode'];
That fixed it. This should really be fixed in the osCommerce release I think.
Thanks again a lot!!