Yes, in fact if you use TEXT mode and have your terminal set to UTF-8, you will get UTF-8 character being sent to you -- not that it will do any good :-). A lower case letter is a lower case letter.
Often people miss the idea that there is a difference between an encoding for a character (the way it is stored in memory) and the glyph for a character (the way it is displayed on the screen). A font (or tileset in DF) maps an encoding to a glyph. So, in memory when we want to print "A" we might store the number 65 in memory. When we want to print the "A", we will see the 65 in memory and look up the glyph in the font. Normally it has a shape like: A. Now, I can change the glyph easily. I can make it look like: B. Whenever you see the word "BAD", it will be displayed on the screen as BBD, but in memory it is still "BAD".
Each lower case character and upper case character has a different encoding. So "A" is 65 and "a" is 97. If I print "Bad", it won't print "Bbd" because I only changed the glyph for capital A (encoding 65), not lower case A (encoding 97).
So the original problem that's being talked about is *not* that the glyph is incorrect -- it's that the string is incorrect. They put a lower case letter with a diacritical in the text rather than an uppercase letter with a diacritical. Why is this? Because Toady originally chose to encode the characters using only the numbers from 0 to 255 (i.e., there are only 256 distinct characters). This is not because Toady is stupid, it's just the way we wrote *all* programs a long time ago. An encoding that can represent exactly 256 characters is called a "code page". These days everybody uses one of the "unicode" encodings (there are several -- the most popular being UTF-16 (Windows) and UTF-8 (The rest of the world)). These allow you to encode every character in virtually every script known to man (*and* as a bonus allows you to encode emojis like pile-of-poo).
So the problem here is that in a 256 character code set, there isn't enough space to have *all* of the characters you might like. Importantly (in this case), there isn't enough room to encode both the lower case characters with diacriticals *and* the upper chase chracters with diacriticals. So, they chose to encode only the lower case characters in this code page. If it frustrates you, you have something in common with every person in Eastern Europe and Scandinavia in the 1990s ;-).
As PatrikLundell says, we could use a different encoding that allows more than 256 characters. This would be ideal, but would require a massive change in the source code, unfortunately. Importantly, even if you change the encoding, the game is still only using the lower case letters with diacriticals. For example, if you type an email using only lower case letters, we can't wave a magic wand and suddenly display it with correct capitalisation. So, essentially, there is nothing that can be done unless Toady does the overhaul himself -- which he is unlikely to do because it's basically good enough. I mean, maybe Dwarfs don't use upper case characters with diacriticals...