Is your data in iso-8859-1? From the look of the error example, it seems to be two bytes per character (note the repetition of Ã). Since 8859-1 uses 1 byte per character, my guess is that your data is in utf-8 format.
Also check that your db is not doing any conversions on data going in or out.
I urge you to use unicode / utf-8 everywhere--database, html, emails, etc. It s what all of the kool-kids are using these days. 8859-1 is so last century!
Regarding emails
config.action_mailer.default_charset = "utf-8"
is what I use.