Your system is telling us that paths are encoded in "ASCII", but you are trying to checkout a file which is not ASCII.
Probably it is just a configuration issue. I don't know your preferred language, but doing something like:
export LANG=en_US.UTF-8 bzr update
will cause it to work. As that tells us that things are actually encoded in UTF-8, and thus we can handle non-ascii characters.
Your system is telling us that paths are encoded in "ASCII", but you are trying to checkout a file which is not ASCII.
Probably it is just a configuration issue. I don't know your preferred language, but doing something like:
export LANG=en_US.UTF-8
bzr update
will cause it to work. As that tells us that things are actually encoded in UTF-8, and thus we can handle non-ascii characters.