This answer is a work in progress (i.e. may change as we learn more about the underlying cause of this error).
First, connect to MySQL from a command prompt and run the following statements:
mysql> use [name_of_your_fogbugz_database_here];
Database changed
mysql> SHOW VARIABLES LIKE '%olla%';
You should get back something like the following:
+----------------------+-------------------+
| Variable_name | Value |
+----------------------+-------------------+
| collation_connection | utf8_general_ci |
| collation_database | latin1_swedish_ci |
| collation_server | utf8_general_ci |
+----------------------+-------------------+
The problem is that the collation and/or character set being used for your FogBugz database (collation_database) does not match the collation/character set being used by FogBugz' database connection (collation_connection).
To correct this, modify your database connection string (Admin -> Site -> Database) to include "charset=latin1".
So, for example, if your connection string is currently something like this:
Driver={mySQL};Server=localhost;Database=fogbugz;User=[user];Password=[password];
It would become something like this:
Driver={mySQL};Server=localhost;Database=fogbugz;User=[user];Password=[password];CharSet=latin1;