Whoops. Forgot that I didn't respond to that.
Well basically from how I read that, by using XMPP you are consenting that you will not use any non-UTF-8 encoding in any way. I wasn't aware of this part of the specification, but that basically looks like as long as you're using XMPP you will have to block anyone who uses unicode characters in their name, and strip them from messages, etc. - with no option, as long as you're using XMPP, for translation of these characters in any way, escaped or otherwise.
I wasn't aware that this was part of the specification. If you'd posted that earlier, the entire discussion wouldn't have happened, as by using XMPP you are effectively agreeing (by my understanding) not to use any non-UTF-8 characters, escaped or otherwise.