How to fix invalid multibyte character for locale error

I created Postgres 8 database in Windows XP using

CREATE DATABASE mydb ENCODING='UNICODE';

and upsized data to it.

The query

SELECT name FROM customer ORDER BY UPPER(name);

returns error

ERROR: invalid multibyte character for locale
HINT: The server's LC_CTYPE locale is probably incompatible with the
database encoding.

How I can get customer list in case-insensitive alphabetical order ?

The query

SELECT name FROM customer

runs OK