As far as I know, both methods are valid, it's just that encoding is preferred for security reasons (makes it harder to spoof another URL by using similar characters). Well, and maybe compatibility with some servers, but maybe browsers rewrite the URLs under the hood to work around that.
Don't pay much attention to "the hedgehog" in my nick, it's just because "Sik" was already taken =/ By the way, Sik is pronounced like seek, not like sick.