While writing reply #16 on this thread, concerning how to get a degree symbol out of an Arduino, I noticed that the serial monitor in the IDE doesn't have a way to select encoding.
On my Mac, it appears to be UTF-8, but it would be nice to be able to set it explicitly for situations such as when your LCD or other output device uses a particular encoding. Java comes with encodings that you can list with
Charset.availableCharsets()
,
so providing a combo box on the serial monitor window should be straightforward.