GLinks works fine with umlauts. You just have to set character-sets for all input (forms) and output (html-pages). Doing so is pretty easy with the user-oriented templates (put it in common header), and also doable for the administrative templates.

For a site that uses Swedish (and Danish, Norwegian and Finnish), see www.shn.dk. Example searches: primärvård, hälsonät, välfärd.
This site uses ISO-8859 character encoding. I am in the process of migrating it to UTF-8, which I normally prefer.