Just to clarify this real quick, my testing indicates that Quest3D actually supports the ISO8859-1 character set. This is why circumflexes, umlauts, ligatures and other common Indo-European characters are supported. CJK characters are modernly provided for by the Unicode standards. Unicode was crafted to be compatible with both ASCII and ISO8859-1, so anything using those encodings is at least partially Unicode by default.
The current issue comes down to a naive assumption in Act-3D's code that a single character will always be one byte. That Lua is very low-level with its Unicode support only exacerbates the problem.
Since it is Lua, I wonder if you could use bindings to hook in other code to handle this better....