I tried that solution and no dice.
Here is how the code of ispconfig_db_mysql.lib.php looks after the mod.
if($this->linkId == 0)
$this->linkId = mysql_connect($this->dbHost, $this->dbUser, $this->dbPass);
mysql_query("SET character_set_client = 'latin1'");
mysql_query("SET character_set_results = latin1");
mysql_query("SET character_set_connection = utf8");
I still get the same error when I login. Since this only happens with 1 domain I don't see how changing the whole code base would resolve this. The other domains login just fine and unfortunately this is the only user who needs this functionality, oh well.