I checked my backup copy of the language files and sure enough it was Latin 1. When I did the upgrade I overlaid that whole directory with the files from the distribution. Would the upgrade scripts have retained this setting had a chosen the other option?
Depends on the upgrade path you use; myself I always overwite the language files while making changes manually after the upgrade; if you don't upload the language files and instead rely on the upgrade script it should make only "new changes".
Basically if you use the upgrade tool it should set that particular string as:
New Install: utf-8
Upgrade with Tool: Previous Setting
