With Joomla! 1.0.13 it is not even possible to enter characters other than a-z, A-Z. This is due to Joomla! using iso-8859-1 and civiCRM UTF-8.
Using Joomla! 1.5 it is possible to enter (I use Swedish a-ring, a-dots and o-dots), but they won't be searchable.
This means searching people or organisations with these characters gives zero results.
It also affects civiEvents when I give an event a name with some of these characters. Clicking on the event gives zero result even though I have several registered participants.
If I change the name of the event and remove special characters it works fine.