08.00.0102 with UTF8 database causes client encoding mismatch error

Trying to use previous version of driver with Postgres 8.1 UTF8 database
causes error

client encoding mismatch

Any idea how to fix this ?
I need to check whether one particular problem is caused by new ODBC driver
or not.

Andrus.

conn=30160408, PGAPI_DriverConnect(
in)='DRIVER={PostgreSQL};UID=postgres;PWD=x;DATABASE=eeva;SERVER=localhost;PORT=5432;B9=0;',
fDriverCompletion=1
Global Options: Version='08.00.0102', fetch=100, socket=8192,
unknown_sizes=0, max_varchar_size=254, max_longvarchar_size=8190
disable_optimizer=1, ksqo=1, unique_index=1,
use_declarefetch=0
text_as_longvarchar=1, unknowns_as_longvarchar=0,
bools_as_char=0 NAMEDATALEN=64
extra_systable_prefixes='dd_;', conn_settings=''
conn_encoding='OTHER'
conn=30160408, query=' '
conn=30160408, query='select version()'
[ fetched 1 rows ]
[ PostgreSQL version string = 'PostgreSQL 8.1.0 on i686-pc-mingw32,
compiled by GCC gcc.exe (GCC) 3.4.2 (mingw-special)' ]
[ PostgreSQL version number = '8.1' ]
conn=30160408, query='set DateStyle to 'ISO''
conn=30160408, query='set geqo to 'OFF''
conn=30160408, query='set extra_float_digits to 2'
conn=30160408, query='select oid from pg_type where typname='lo''
[ fetched 0 rows ]
conn=30160408, query='select pg_client_encoding()'
[ fetched 1 rows ]
[ Client encoding = 'UTF8' (code = 34) ]
Client encoding = 'UTF8' and OTHER
CONN ERROR: func=PGAPI_DriverConnect, desc='Error from CC_Connect',
errnum=214, errmsg='client encoding mismatch'
------------------------------------------------------------
henv=30160352, conn=30160408, status=0, num_stmts=16
sock=30171424, stmts=30187896, lobj_type=-999
---------------- Socket Info -------------------------------
socket=460, reverse=0, errornumber=0, errormsg='(NULL)'
buffer_in=30171496, buffer_out=30179696
buffer_filled_in=58, buffer_filled_out=0, buffer_read_in=58