You should use utf8_encode()
to encode all your values.
something like:
while($row = mysql_fetch_array($result)) {
extract($row);
$output .= '<item>';
$output .= '<title>' . utf8_encode($title) . '</title>';
$output .= '<description>' . utf8_encode($description) . '</description>';
$output .= '<link>' . $link . '</link>';
$output .= '<pubDate>' . date("d. F Y, H:i", strtotime($date)) . '</pubDate>';
$output .= '</item> ';
}