I have not yet found book designer (anyone have a URL?), but it looks like it is a Windows program. Libprs500 looks promising, but I will have to do a bit of work to get it running on my machine (it seems to want a later version of python than then one I'm running).
So it sounds like the short answer is the Sony probably understands and uses utf-8. I have not heard from anyone using the cybook, will it work as well or did I not understand what I had been reading?