Thanks for the quick reply. I tried 4 variants of UTF-16 and they did not work (either causing Matlab to complain about unrecognized characters or ignoring entire chunks of the file.) On the other hand, other encodings such as Western ISO-8859-15 work. Mac Roman doesn't work (I'm using OSX.)
I guess we'll just have to make an exception for m-files and save them using ISO-8859-15.
Many thanks!