Edit: Actually it makes more sense to me that sw.Write
writes a file with a BOM, but PGP decrypt might not, so if you're opening with notepad that will default to Windows-1252 when there is no BOM? If that is the case, you can try reading the decrypted file with C# and specify a the encoding as UTF8 when you open it.
The Ã
character I find usually comes from Windows-1252 Encoding.GetEncoding(1252)
being interpreted as UTF8, or vice versa. Some older programs will use it by default, or from web sources, so the problem might be farther up than your PGP encryption.
Try writing the file as Windows-1252 (maybe PGP actually defaults to that on windows), or make sure that when you write out the file it has a BOM for UTF8