[eluser]Natebot[/eluser]
Since you are using Unicode, try
$test = htmlspecialchars($_POST[‘posted_value’], ENT_NOQUOTES , 'UTF-8' );
Assuming your html dictates UTF-8 ( <meta http-equiv="Content-Type" content="text/html; charset=UTF-8" /> ) and your database is using UTF-8 collation, then my guess it has to do with use PHP functions. Some I understand don't support UTF-8 so well.
I have read that if you do not set the optional $charset parameter in htmlspecialchars you will experience problems and even so there may still be misinterpretation of UTF-8 content.
However, am I understanding the problem corretly? Because the character Ü should not be affected by htmlspecialchars.