OK interesting. A few things.
1- wlatin1 is not a language, it is an encoding. Actually, single-byte, vs the double-byte of UTF-8. This means that what SAS receives or sends is not UTF-8 as you would expect. I would focus on this investigation path as it might be reason, if the something in between is translating from UTF8 to Wlatin1.
2- About DFLANG, please check the language in your database, and in your SAS session. And adjust both and the DFLANG.
3- Check out this hotfix http://ftp.sas.com/techsup/download/hotfix/HF2/D9R_wx6.html
4- As I heard you have SAS/ACCESS to ODBC, fust for fun and giggles, you could try to set up an ODBC connection to Sybase and see how it goes.