http://blog.pfsense.org/?p=676
http://doc.pfsense.org/index.php/Upgrade_Guide
International/Special Characters in 1.2.x Configs
International characters, such as åäö and so on, were not supported on 1.2.3, but were allowed in some places due to overly lenient input validation and less strict XML parsing. This causes invalid XML, and as such if you were lucky enough to not have 1.2.x crash and toss out the config on you with such characters, it will not upgrade to 2.0 cleanly.
2.0 will reset and toss out the config on every reboot, leaving you at an "assign interfaces" prompt since it does not have a valid configuration.
You can run your config through an xml parser like xmllint and it will show you where the problems are. Fix them, and the configuration can be upgraded. The good news is that these characters are handled properly in most areas of the 2.0 GUI, and they are CDATA escaped so they are safe from such errors.
You can install the new Pre-2.0 Upgrade Check package (System > Packages, Available packages tab), and then go to Diagnostics > Pre-Upgrade Check. This package will check over your config.xml and alert you to potential issues.