Sorry, it is definitely a bug! I suffer the same situation as walmillard.
I am working with iReport Designer 4.0.1.
My data source is an XML file.
With German "Umlaut" and French grave/acute accents it is even worse. The parser does not recognize entities such as "& uuml;" or "& eacute;"!
Use entity numbers instead of entity names - example for German Umlaut "ä": Use "& #228;" instead of "& auml;"