In a few test I have made upgrading from pre 1.3 versions to 1.3.3 when 'DB_COLLATE' and 'DB_CHARSET' are not utf8 causes major problems.
After replacing the system's files with the new version files I noticed that text from the db is not correctly encoded. When I enter the correct values in the config file ('latin1_swedish_ci') the text is shown correctly but now the upgrade process and creating new blogs do not work. It seems that wpmu is not able to create new tables.
Could not find any useful information while searching the forums :(