If you want to override the propel configurations for charset (encoding) for the connection you usally set the settings['charset'] value to for example utf8.
But if you are using agavi you want to configure propel properly by using agavi's databases.xml.
So after trying a while, here is how you can set the charset (magic is
bold):
<?xml version="1.0" encoding="UTF-8"?>
<ae:configurations
xmlns:ae="http://agavi.org/agavi/config/global/envelope/1.0"
xmlns="http://agavi.org/agavi/config/parts/databases/1.0">
<ae:configuration>
<databases default="propel">
<database name="propel"
class="AgaviPropelDatabase">
<ae:parameter name="config">%core.app_dir%/config/propelproject-conf.php</ae:parameter>
<ae:parameter name="overrides">
<ae:parameter name="connection">
<ae:parameter name="dsn">mysql:dbname=icanhazagavirelease;host=127.0.0.1</ae:parameter>
<ae:parameter name="user">w00t</ae:parameter>
<ae:parameter name="password">not_default_pass</ae:parameter>
[strong]<ae:parameter name="settings">
<ae:parameter name="charset">
<ae:parameter name="value">utf8</ae:parameter>
</ae:parameter>
</ae:parameter>[/strong]
</ae:parameter>
</ae:parameter>
</database>
</databases>
</ae:configuration>
</ae:configurations>
