Is this an issue in all environments?
If locally or onprem, what is the encoding of your database?
Haven't tested this anywhere else yet as we are developing this now.
However, å is not something the database would encode (?) since it is special for html. https://www.ou.edu/research/electron/internet/special.shtml
Also if it was the database then shouldn't this be an issue in other IContent properties to?
We don't have that issue there. Only at "Block name"-editor field in the InlineBlock feature.
It sounds like missing HTML decoding, or too much encoding. As the platform is Unicode, it shouldn't need to HTML encode string properties.
I am sure Optimizely Support would appreciate a bug report on this. They usually fix this kind of bug rather quickly.
Some characters will not get "html decoded" in the Block name field when editing an Inline Block. This is an issue for some charaters outside the latin alphabet. (Like ÆØÅ, and probably more)
Here is an example:
Edit the block again and the editor shows this:

This affects at least Æ Ø Å, probably more characters too:
It is a minor bug, but it would be easier to read if the name was presented in the correct way for the editor.
Running CMS UI 12.32.4