Correct - see
http://www.subsim.com/radioroom/showthread.php?t=173248 for my warning on this very issue.
Modders need to remember to stick to the first 128 characters if they want to ensure full compatibility with all potential users...and more importantly the game itself. As the above link shows, using extended characters with SH3, for example, will in certain circumstances break it, regardless of whether JSGME is used or not.
In your case it might just be the mod folder name with an extended character, which will only break JSGME (because the mod folder itself isn't copied to the game), but if one of the mod files has a similar problem, it could potentially CTD your game, because your game may not be able to "see" the file with the extended character.
I'm in the process of making JSGME fully UTF-8 compliant; at the moment the interface is, but the config files are not. That's an easy fix, however, it still won't compensate for file names that deviate from the standards.