I am using msys mintty on vista.
My font is Deja Vu Sans Mono, which has excellent unicode coverage.
The simplest test is to just cat this file: http://www.cl.cam.ac.uk/~mgk25/ucs/examples/UTF-8-demo.txt all non-ascii characters show up as boxed questionmarks.
I have explicitly set the encoding to UTF-8 in mintty's settings.
Similarly pasting non-ascii text into mintty gives me garbage. What's going on? Everything I can find tells me that mintty should support unicode just fine.