(Updated version available here)

As suggested by M Merrill in my former post of SQLCMDScriptExpander (which can be found here), I added an option for providing the encoding of files. So I created another option where you can specify the encoding from the following options:

/Encoding:[  ASCII |
                    BigEndianUnicode |
                    Default |
                    Unicode |
                    UTF32 |
                    UTF7 |
                    UTF8 ]

This will generate a file with the chosen encoding and will make sure that your special characters are honored. If no encoding is passed, it will fallback to the default value as of your settings on the machine. For more information, visit the encoding information page of MSDN here.

Thanks for the valueable input and feedback ! The new bits can be downloaded here.