After upgrading from Snow Leopard to Lion, ssh connections to remote servers using iTerm2 have issues with non ascii characters.
Luckily that’s easy to fix. Simply comment
SendEnv LANG LC_* in
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Host * # SendEnv LANG LC_* # ForwardAgent no # ForwardX11 no ...
No other changes are needed. You could also permanently change your locale to UTF-8.
export LANG=en_US.UTF-8 in your shell’s source file.