I don't know what they were thinking, using a UI setting for parsing an interchange format.
There's a way around, IIRC, with the "From text / csv" command, but that looses a lot of the convenience of double-clicking a CSV file in Explorer or whatever to open it in Excel.
That's it, but it's really bad.
From what I have heard, it's still an issue with Excel, although I assume that Windows may handle plain text better these days (I haven't used it in a while)
You need to write an UTF-8 BOM at the beginning (0xEF, 0xBB, 0xBF), if you want to make sure it's recognized as UTF-8.
I was on the Power Query team when we were improving the encoding sniffing. An app can scan ahead i.e. 64kB, but ultimately the user needs to just say what the encoding is. All the Power Query data import dialogs should let you specify the encoding.
It works better if you click to "import the data" instead of just opening the csv file with it, and if you then choose the right data types. But having to do this everytime to make it work is really annoying, esp when you have a lot of columns, plus people can easily get confused with the data types. I have never seen that much confusion eg with macos's numbers.