Have a quick read through this post:
https://www.ubbcentral.com/forums/ubbthreads.php/topics/255103#Post255103Basically, you can do #1 with absolutely no problems.
update the language files / header meta tags from "iso-8859-1" to "utf-8" @
Control Panel > Languages > Language Editor > generic.php > CHARSET
This has no affect on the database and anyone can do this. It just simply tells browser/crawler what character set to expect/display the page as, rather than leave decision up to the browser/crawler to determine.