XMLHTTP & Character Encoding UTF-8

Hello all, ive been having strange problems using XMTHTTP to send XML messages to a server and back.  I have a page encoded in UTF-8:
<meta http-equiv="content-type" content="text/html; charset=UTF-8">

And my XML messages are UTF-8 encoded:
<?xml version="1.0" encoding="UTF-8"?><ajax-request><addmsg><![CDATA[ £ ]]></addmsg></ajax-request>

Im using the prototype library for managing the XMLHTTP requests, so in Firefox the object im using is this one:
new XMLHttpRequest()

My problem is that when I send a message with a pound sign (£ - unicode 163) which is outside the usual iso-8859-1 set, it becomes encoded as this:
£

Is there a provision in the XMLHTTP object to specify character encoding?  I cant seem to find one.  It would appear the only available choice is iso-8859-1.  You can see this encoding problem in action by doing this browser test.  Create an XML file with this content:

<?xml version="1.0" encoding="UTF-8"?><ajax-request><addmsg><![CDATA[ £ ]]></addmsg></ajax-request>

View it in a browser and then change the encoding to "iso-8859-1"; refreshing the page shows the behaviour I am experiencing in my XMLHTTP requests.

Conversely, if i create a static HTML page with a content-type encoding set to UTF-8 and then include the pound sign (£) from my keyboard, the browser renders it as this character: &#65533; - switching the encoding to iso-8859-1 renders a correct pound sign (£)!  Not quite sure what this means...

So to clarify, can anyone explain what exactly is going on here?  And how can I deal with the XMLHTTP encoding problem?

Thanks for your help