If you're dealing with a bad API that only takes ASCII, "Celje" is usually better than "ÄŒelje" or "蒌elje".

If you have control over the encoding on the input side and on the output side, you should just use UTF-8 or something comparable. If you don't, you have to try to get something useful on the output side.

This depends.

Everyone over here would know that "ÄŒelje" (?elje) is either čelje, šelje or želje. Maybe even đelje or ćelje if it's a name or something else. So, special attention would be taken to 'decypher' what was meant here.

But if you see "Celje", you assume it's actually Celje (a much larger city than Čelje) and not one of those variants above. And noone will bother with figuring out if part of a letter is missing, it'll just get sent to Celje.