As far as I know there is no way to change the encoding of an existing database in postgresql apart from pg_dump'ing the contents, recreating the database in the desired new encoding and importing the data. I've never done that myself so I don't know wether it's necessary to specify encodings for pg_dump or psql when importing. You propably need to find a trick to tell pg to export the chars that were wrongly saved as 2 characters as one, or run a regexp over the dump file.
Regarding the missing documentation, I added a comment to the installation page.
