If a hacker changed the blog_charset to UTF-7 does that make WordPress vulnerable to further attacks?

< and > are encoded as +ADw- and +AD4- in UTF-7. Now imagine the following:

1. Someone sends +ADw-script+AD4-alert(+ACI-Hello+ACI-)+ADw-/script+AD4- as comment text. It will pass all sanitation unescaped.

2. The database expects and treats all incoming data as UTF-8. Since all UTF-7 streams are valid UTF-8 too, this will never result in a SQL error, and mysql_real_escape or htmlspecialchars will not touch it.

3. WordPress sends a header text/html;charset=utf-7.

4. WordPress displays the comment, expecting escaped data. But since this is treated as UTF-7 by the browser the JavaScript will be executed.

So, yes, it is a security problem.

UTF-7 is not supported by all browsers, most will render the text as Windows-1252 (or whatever is the default encoding on their OS) or as UTF-8.
The main problem is: escaping will not work anymore.

Just changing the encoding value back is not a solution. A regular visitor can never change it, so you have to find the open door.