Is it better to show common latin characters than language specific characters?

Just got the results of a very quick test we did for a multilingual app (test performed on people from US and Canada), and to my surprise I found that the word Espanol worked better than Español. This reminded me of a time when we had a lot of problems with people reading the german character ß as the letter B so it had to be replaced by SS to be understood.

In the specific case of Español, it's worth mentioning that changing the way it's written changes how it's pronounced. In order to accurately write the word as it should sound, it should be Espaniol or Espanyol rather than just Espanol. So, using Espanol effectively changes the way it's pronounced for people who speaks Spanish

So I'd like to know if there's any kind of study demonstrating it's better to use international characters even to the cost of lesser understanding by people who speaks the language, or if it's better to stick to the language the way it's supposed to be, no matter how people who doesn't speak the language reads it (just in case, I'm inclined to the latter, but data shows me I might be wrong)