problem with accents in url: is this caused by the browser or drupal?

Supposing one of my urls, when the page has loaded, is:
domain.com/dias/sábado (/days/saturday in English)

If I copy and paste it anywhere (ie. into a url bar in any browser, an email body, MS Word, etc), it is copied like this: domain.com/dias/s%C3%A1bados

Obviously this is VERY undesirable.

Also as a secondary concern, when following a link to: domain.com/dias/sábado
s%C3%A1bados appears in the url bar for a few seconds before changing to sábado.

I'm shocked and surprised that in 2011, I apparently still need to 'transliterate'
non-english urls into ascii. I'm just posting here to double-check that this is the case?

Is it best to avoid accented characters in urls for another few years, OR should it be
working, and I've possible got something set-up wrong either in Drupal or my Browser?

Thanks.