I tried using the convertor tool provided by MySQL to change MySQL calls to MySQLi calls but it still does not show correct characters. I tried entering a new ad and still the same problem. Some calls could not be converted. Any chance you could take a look at it? Most files get converted fine but some have warnings, some about potential security bugs...
http://forge.mysql.com/wiki/Converting_to_MySQLi
I'll try a clean install next but it appears even with MySQLi calls the problem remains.