You can force mysql 3.23 to store utf8 in char and varchar fields, however, you will hae to treat is as garbage in garbage out. MySQL does not know it is utf8 and will not treat it as utf8 butas ISO8859-1, only you yourself knows it is stored as utf8.
Take note of the followings:
1. ISO-8859-1 uses 1 byte for each character, utf8 uses 1 to 3 bytes for each characters depending to the code point value of the character. So, you may need a longer Char or Varchar field for version 3.23, since it assumes 1 char is 1 byte. In version 4.1, the char and varchar field is specified with number of characters.
2. Collation sequence may not be correct in 3.23 anymore when you store strings as utf8.
3. Case insensitive comparison may also give you wrong result for characters > value 127 in ISO-8859-1.
If you want to upgrade to version 4.1 and convert the ISO-8859-1 encoded data to utf8, please read this carefully before doing any upgrades.
http://dev.mysql.com/doc/mysql/en/charset-conversion.html
Also, read the upgrading notes.
And, make sure you have a backup.