Here are an example xml-file and php-script which demonstrates
this behaviour:
---------

<?xml version="1.0" ?>
<document>
<test1>??????</test1>
<test2>&#229;&#228;&#246;&#197;&#196;&#214;</test2>
</document>

---------

<?php

$file = "test.xml";

function characterData($parser, $data) {
    print "*$data*<br>";
}

$xml_parser = xml_parser_create();
xml_set_character_data_handler($xml_parser, "characterData");

if (!($fp = fopen($file, "r"))) {
    die("could not open XML input");
}

while ($data = fread($fp, 4096)) {

    if (!xml_parse($xml_parser, $data, feof($fp))) {
        die(sprintf("XML error: %s at line %d",
            xml_error_string(xml_get_error_code($xml_parser)),
            xml_get_current_line_number($xml_parser)));
    }
}

?>

-----------------

php configure line:

./configure 
--prefix=/data --with-config-file-path=/data/conf  
--with-mysql=/data/kolumbustori
--without-gd --disable-pear
--disable-debug

And the output with those files:
 
* *
* *
*??????*
* *
* *
*?*
*?*
*?*
*?*
*?*
*?*
* *

--Jani