I needed to add a contact from Västerås, Sweden to my iPhone. Not knowing how to enter international characters, I sufficed to type "Vasteras", which is good for a Swedish chuckle if pronounced out loud.
How to Enter International Characters on the iPhone:
Using the iPhone "keyboard", just hold down the letter key you wish to modify . A popup menu will appear showing the possible modified symbols. For example, if you want "å", hold down the "a" key and choose "å" from the popup menu.
This was apparently an undocumented feature in the latest iPhone software release, version 1.1.1.