Foreign character struggles

I compiled postgres with --enable-multibyte and --enable-recode, and it
doesn't appear to help with my problem.

I have a database which contains "foreign" characters in city names, like "S�o
Paulo" (Sao Paulo). 

If an end-user types plain-english Sao Paulo, I want the database to pull up
"S�o Paulo", essentially just treating the accented characters as if they were 
regular ASCII.

select to_ascii(city) from latlong where ccode='BR';
ERROR:  pg_to_ascii(): unsupported encoding from SQL_ASCII

select convert(city,'UNICODE', 'LATIN1') from latlong where ccode='BR';
ERROR:  Could not convert UTF-8 to ISO8859-1

Also, my "Up Arrow" and "Delete" keys no longer work since I recompiled 7.2.3
on debian.

Thanks for any help,

Tim Perdue