Later versions of facelets default to UTF-8. If you want to change that I think you can specify the encoding parameter on the xml declaration. If that doesn't seem to work for you, you might want to ask the facelets mailing list.
Actually ends up that wasn't the problem. Everything displays properly if I set the escape="false"
but this is not what I want. I want the users to be able to input anything and if there are things that need to be escaped, the h:outputText should escape it, but I don't want the characters in other languages to be all escaped as well..