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All of the human-readable and human-supplied strings in SSH-2, including user names, passwords, banners, and error messages, are specified to be encoded in UTF-8. PuTTY currently ignores this and uses whatever character-set the terminal happens to be configured to use instead. Fixing this is relatively easy in PuTTY, where it's possible for the SSH code to poke around in the terminal's state. It's not so easy for plink and PSFTP, which will need to gain an understanding of character sets.
Audit trail for this bug.