Unfortunately, in 1.3.7 and 1.3.8 -- the code for handling HTML entities is slightly broken, so users from Nordic or Germanic countries see:
Baden-Württemberg rather than Baden-Württemberg
In places like the Shipping Information or the Account Creation code.
The solution i've been using, is to edit the files that reference the zen_js_zone_list code and correctly sanitise the output-- this is done in two places (one for admin, one for userland).
Firstly, edit the admin/includes/functions/html_output.php file and around line 188 change:
--- return $output_string;
+++ return html_entity_decode($output_string);
Secondly, edit the includes/functions/functions_general.php file and around line 1448 change:
--- return $output_string;
+++ return html_entity_decode($output_string);
You should now have accented characters in places they should be.