I have the same problem, i tried to change encoding to multiple others but i saw no change. Whenever i viewed the webpage it always showed UTF-8 encoding, no matter what i changed it in indeks.language.php.
Well, i disabled the ability for users to change the language and i just started to transalte english files, without changing the name to, for example index.estonian.php. Everything works fine but on menus and other places it wont show õäöü characters. Some places, like boards and news show those characters though. Why some places show these and some wont?? What should i do? How can i make menus display these characters?