The following bug has been logged online:
Bug reference:      2400
Logged by:          Yusuf Siddiqui
Email address:      ysiddiqui(at)i3(dot)com
PostgreSQL version: 8.1
Operating system:   Linux
Description:        '' considered invalid UTF-8 character
Details: 
The character '' is rejected as an invalid UTF-8 character.
Here are the steps used to recreate it:
create table test (text_field text);
insert into test (text_field) values ('');
Returned error: 
invalid UTF-8 byte sequence detected near byte 0x92
This statement also does not work:
insert into test (text_field) values ('\');