If you do any text editing at all you will love Notepad++. Get the XML plugin too.
EQ2 XML files should be saved as UTF-8 but it almost always doesn't matter. ASCII usually works too. A bunch of the default XML files are in ASCII. If you're getting some strange error double check that your file is UTF-8 though.
In the Windows world UTF-8 has a non-standard byte sequence (EF BB BF) at the beginning of the file to identify it as UTF-8. You can see this by pressing the H button in Notepad++. Without this byte sequence most text files in UTF-8 would look exactly like ASCII text. See here for more info:
http://en.wikipedia.org/wiki/Utf-8
When you open a messy file in Notepad++ go to the Plugins menu to XML Tools - Pretty print (Text indent) and everything is much easier to read. You can change the type of indentation in the Preferences - Misc - Tab Setting window.
I haven't used jEdit but I think I looked at the web site a long time ago.
Let us know if you have any more questions.