Which text editors (free or commercial) handle character encoding and Windows/Unix line breaks properly?
Scintilla and Scite are my favorites but there are lots of good ones that will do what you want
On Windows you can use PowerShell ISE for editing files with Unix line breaks.
The only side-effect I observed is that you have to set "Save as type" to "All files" on "Save As..." command to avoid appending .ps1 file extension.
Notepad++ is free and handles this dandily. Not to mention it's quite handy for plenty of other text-editing tasks.
Notepad++ is really good.
I'm having no problems whatsoever with formatting, special characters and umlauts by using IDM UltraEdit.