Today I run Cygwin with rxvt using the following startup line:

rxvt -bg black -sl 8192 -fg white -sr -g 150x56 -fn "Fixedsys" -e /usr/bin/bash --login -i

This gives me a resizeable native Windows window which is much better than the standard "DOS box" the default cygwin.bat provides.

However, the current configuration does have a couple of issues:

1. I am not able to enter non-ASCII characters into the terminal window (i.e. æ, ø, å and Æ, Ø, Å, which I use semi-frequently. In fact, the terminal will not even accept them when I paste them into the window. If I paste a string like "bølle" (Norwegian for "bulley"), all I get is "blle".
2. I am not able to render UTF-8 character, they only show as ?, even if they are supported by the font (i.e. when rendering the same characters in ISO-8859-1 they show just fine.).

I am running English Windows Vista with locale and keyboard layout set to Norwegian (ISO-8859-1 character set?), but I've had the exact same issue on Windows 2000 and XP.

Anyone knows how to fix this (i.e. a better way to configure rxvt)?

Apart from the issues mentioned above, I'm very happy with rxvt, so if I find a way to resolve them I'd like to continue using it. However, if the issues are not (easily) solvable, are the any other good terminal solutions for Cygwin?

Update

The solution provided by Andy and Mattias (editing the .inputrc file) did solve the input problem, but output rendering is still an issue. Output is fine when I render in ISO-8859-1, but when using UTF-8 I only get ? for non-ASCII characters. This behavior is consistent between rxvt, urxvt (under Cygwin XFree X Server), mintty and PuttyCyg.

Is there a similar configuration file where output encoding can be set (i.e. the equivalent of setting output locale on a Linux system)?