Hello!
I remember one solution that came up on a the dev list: one library was using google transliteration integrated into koha search box.
http://lists.koha.org/pipermail/koha-devel/2009-October/010220.html
Solution in work: http://www.granthalaya.org
I hope you find this usefull.
Piotr Wejman
CNSE Library