Fixed in CVS and 4.0.3.

Problem:
1. Mail->Compose->Address Book
2. select name "Martin Ždila"
3. press [To >>] (in the left pane is "Martin Ždila")
4. press [Search]
5. in the left pane is "Martin %u017Ddila"

Solution:
in contacts.php
1. add:

function unicode_decode($txt) {
         $txt = ereg_replace('%u0([[:alnum:]]{3})', '&#x\1;',$txt);
         $txt = ereg_replace('%([[:alnum:]]{2})', '&#x\1;',$txt);
         return $txt;
}

2. replace line:
$selected_addresses[$a[0]] = $a[1];
to:
$selected_addresses[unicode_decode($a[0])] = unicode_decode($a[1]);