When I am editing a file in Vim I have some lines with a bunch of  displayed.
I have already checked the encoding with
:set encoding
Does it appear when you type the British Pound symbol? Try changing your encoding:
:set encoding=latin1
Make sure that PuTTY is set for UTF-8 as well. You can do this under Window -> Translation -> Remote Character Set. You may need to choose a font that supports a reasonable portion of the Unicode range as well -- Terminal isn't necessarily going to cut it.