The best thing to do is to convert your database to utf8 (and set CHARSET and DATABASE_CHARACTER_ENCODING to uft-8 and utf8 respectively).
However, if you keep CHARSET to ISO-8859-1 (encoding you the page and of your user input), you need to set DATABASE_CHARACTER_ENCODING to the MySql equivalent of ISO-8859-1, Latin1 I think. Vanilla use it to tell Mysql which encoding is sent to it and which is expected.
Comments
I was using ISO-8859-1 on my old version as well (0.9.x)
My only consern now is this - Lussumo Banner (How?) # 14 Hopefully someone can help me with this one as well
Thanks!
SET NAMES 'ISO-8859-1'; =>#1115 - Unknown character set: 'ISO-8859-1'