What I also forgot to mention is that directory listing on this server worked with a previous version (some 3.x.x ... don't know the exact version number) of WinSCP.
Since version 3.7.1 WinSCP treats filenames for protocol SFTP v4 as UTF-8 encoded, as SFTP specification requires. Either your server does not encode filenames in UTF-8 (which would be violation of the protocol) or WinSCP decodes them incorectly.
Resolution:
1) Downgrade to WinSCP 3.7 beta. This is not recommended as all versions prior 3.7.1 suffered serious security issue.
2) If you can work with Windows registry add option "SFTPMaxVersion" to respective registry key of your stored session. Set the option to 3 (decimal). You may also switch configuration to INI file, if you are more familiar with it (see Storage tab of Preferences dialog). If you need more help on this, let me know.
Thanks a lot ... the additional registry option works perfect. Could imagine that WAC server doesn't use UTF-8 for encoding ... Windows software and standards ;-(
I have already implemented switch to optionally disable UTF-8 decoding. It will be included in the next release.
It have default value "auto" to automatically disable it for WAC server and enable it for all other servers. I may be forced to "on" when other server with the bug is found. Please let me know it such case so I can include it to the autodetection.