I think this is a bug, as I'm able to connect using an SFTP command line in Linux just fine.
- Set up a user on an SFTP server with a £ symbol within their password.
- Attempt to connect to this server with the credentials you have just set up.
Version of Windows: 7 Professional
Versions of WinSCP tested: 5.7.6, 5.1.5.
Method of connection: GUI using Commander interface.
Authenticating with pre-entered password. Access denied.
Error (Server side):
 Fri 15Jan16 15:26:26 - (009053) SSH2_MSG_USERAUTH_REQUEST: user: test; service: ssh-connection; type: password  Fri 15Jan16 15:26:26 - (009053) Invalid login credentials; user: "test"; password: "**********"  Fri 15Jan16 15:26:26 - (009053) SSH2_MSG_USERAUTH_FAILURE: login failed
Please find log file attached.