Hm. I think my instinct would be to force an explicit conversion for display purposes only and make it the user's problem. Otherwise they'll need to call the thing twice anyway.
Unless we return an array with two elements, a converted filename and an un-converted one. :)
I looked at Christian's patch now (sorry Chris but because I'm lazy and all your list messages come through as attachments I usually wait until someone's answered you before I start to read them!) and think the default should be 0 if it's going to be applied at all. Having it as 1 will lend a 'wtf' factor when the PHP file functions suddenly stop working; having gobbledegook display in a widget is more likely to make people realize it's a GTK+ issue and look at the manual.
Hmm, okay.. Anyone else feel that it should not convert by default?
-Andrei