inserting utf8 value in unique column generates unexpected duplicate key error

I'm inserting the french word for "Hotel" (with a circumflex over the
'o') into a column that is a unique key on a table. Apparently the
insert statement is truncating the string to "H".

Additionally, when rails tries to select the french word for "Hotel",
the string is not truncated and the inserted record is not returned.

Presumably, I have my utf8 settings with rails and my mysql innodb
database screwed up. I did set uf8 on the table definition and in
database.yml, so I'm stumped. Anyone else ever have this problem?