String encoding during connection "handshake"

Hi all.

I have read the documentation, searched the mailing lists and inspected the
code JDBC driver code. I do need to address this question to actual
developers.

Simply put, what is the client encoding that the server assumes BEFORE the
client connection is established, that is, during the authentication phase? I
know there's a "client_encoding" setting on the server side that indicates
the encoding used in the communication stream, but its default value is the
database's encoding. Which is not known before the user gets authenticated
and the "logical" connection is actually made.

I'm asking this so that I can fix the JDBC driver that wrongly assumes that
user name, password and database name are made up of ASCII characters only.
This issue has come up before, but no action has been carried out. See
http://archives.postgresql.org/pgsql-jdbc/2007-10/msg00128.php
I also need a vital information regarding the MD5 hash that is computed is
some authentication scenarios. This hash is based on char[] (String) values
that must be converted into byte[] before being handed over to the hash
algorithm. What is the encoding used by the server to make this conversion
during the authentication phase (in order to verify the submitted password)?

I also saw that the JDBC driver sends right away this pair to the server:
{"client_encoding", "UNICODE"}. Does that mean that the client is requesting
the server to interpret the communication stream as encoded in "UTF8"?

Thanks.