The encoder should be set for the webClient in the RssReading.Read()
method
webClient.Encoding = Encoding.GetEncoding("windows-1255");
string result = webClient.DownloadString(url);
Sorry I don't have a font with correct ligatures, but I believe this will works:
So you can keep
readableRss = RssReader.covertRss("http://rotter.net/rss/rotternews.xml");
textBox1.Text = readableRss;