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<?xml version="1.0" encoding="windows-1251"?>

It's standard XML header and "encoding" describe character set for XML file content - nothing more. Problem with cyrillic characters MediaPortal have because of method of fonts handling. MediaPortal prebuild bitmaps for the first N unicode characters in the font. By default N is 512 and it is not enough to display cyrillic characters. Value <characters>1250</characters> resolve this problem.

BTW Refer this guide http://wiki.team-mediaportal.com/TranslatorGuide