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It's not a bug. It's a feature missing, which some of you came up with and what seems to be in need more and more. I would like to open this issue collecting ideas for that to target on a soon implementation for D6 and D7. The magic word is "punycode" and makes me comin' up with thinking about an extra widget on this.
Read here on issues related to this need:
and here what "punycode" is (if you don't already know): http://en.wikipedia.org/wiki/Punycode