There's no other way for mIRC to display text in 7.x besides Unicode. If the byte value is >128, the only way mIRC can show this in a window is by encoding it as UTF-8, as it does with all data. So it doesn't seem like a bad idea to me.
I think you misunderstood me. I don't have a problem with how mIRC handles debug output to a window. I have a problem with how miRC handles debug output to a file. If you are outputting to a file, it makes no sense to double encode the text.
It seems far more useful to me if mIRC would output byte-for-byte exactly what is transmitted into the file. There shouldn't even be any UTF encoding or decoding involved if nothing is being displayed to a window.