I think I know what the issue is... when PayPal send the notification it sends the data using a different charset than UTF-8 so those names gets messed up. Not sure if you can set anything in your PayPal profile to tell PayPal to send the data back using UTF-8 format.
Anyway, here is a quick fix for you that should work:
1. Correct the product name in the email
Open the "paypal.php" file and search for the following line of code:
$cart_item_data_name = trim($current_cart_item['item_name']); //$retrieved_product->name;
Once you find it change it to the following:
$cart_item_data_name = $retrieved_product->name;
2. Correct the product name on the Thank You page
Open the "eStore_includes3.php" file and search for the following line of code:
$cart_item_data_name = trim($current_cart_item['item_name']); //$retrieved_product->name;
Once you find it change it to the following:
$cart_item_data_name = $retrieved_product->name;
This should make it to where it will use the product name from the database rather than the value sent from PayPal.