I mostly read english ebooks, so not many of my books has special characters in the name, so hadn't noticed, but just checked, calibre renames the folders for authors and titles to international characters for me as well. But it doesn’t change the name of the database folder. Maybe because my installation of Win7 is in norwegian, and don't have a problem with 'æøå'.
As I said, easy to fix, I just renamed my library folder (from with-in calibre), so that there where no special characters in the name, and that made the plugin work. It's such a nice little plugin
The library folder is from when I first started using calibre early this year. Calibre has never had any problems with it. I have two separate libraries that I switch between, and for instance copying from one to the other hasn’t been a problem. It's just when I started using the Open with plugin I got an error. I don't use the norwegian translation of calibre, but there is some norwegian in metadata and columns, and that’s never been a problem, so I haven’t thought too much about which language I use when naming things.