From the Debian bug report (#570789):
In german we have umlauts (öäüß), which are correctly displayed on the console, when I type them, but it seems they are not completely deleted, when I delete them.
When I have typed them in error in an console-command (let's say I typed 
"cat /var/log/syslogä"), and delete the umlaut (which leads to 
"cat /var/log/syslog", which should be correct), the command does not work
(no result or error message "file or directory not found"). 

If seen this myself quite a few times when testing keyboard configuration in Debian Installer, but can also reproduce it after 'busybox sh' on an installed system. The issue is fairly old, certainly before 1.10.

It can also be seen by the fact that if a command that contains 2 or more accented characters is completely deleted, it will backspace over the command prompt.

Cheers,
FJP