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In query fn-encode-for-uri1args-2.txt, the test URI "http://www.example.com/~bébé" appears. In the source text, the e-acute characters are represented by the octet xE9, indicating that the query text is actually encoded in iso-8859-1 rather than in UTF-8. The file should either be in UTF-8, or it should have an encoding declaration specifying iso-8859-1 at the start of the query.
I can't confirm the original bug in this post, on my system both the query and the expected result are encoded correctly. However, there is an encoding problem in IRI to URI: fn-iri-to-uri1args-2.xq is encoded incorrectly (is ISO-8859-1, should be UTF-8): Queries/XQuery/Functions/AllStringFunc/EscapingFuncs/IRIToURIfunc/fn-iri-to-uri1args-2.xq
fn-iri-to-uri1args-2.xq is encoded incorrectly. fn-encode-for-uri1args-2.xq seems to be ok. fn-iri-to-uri1args-2.xq is now fixed. thanks, Joanne