I was browsing the Pango website and hit their nice summary about why Pango is UTF-8 based. Pango is the text drawing engine for GTK (and possibly other toolkits) used by Gnome. It seems people prefer it to FreeType since it is designed with i18n as one of the top priorities. To see why they chose UTF-8 go to the page http://www.pango.org/design.shtml and scroll down to the "Text Handling" section.

-Ben