I just figured out why the users with usernames with umlauts weren't able to login. My stock configuration of vBulletin 3.5.0 allows users to select usernames with "scandinavian" characters (?,?,?) which are part of the extended ASCII set. Thus the usernames are not encoded as Unicode in the database. However, logins with usernames containing such characters were failing.
When I disabled the following line in your vbulletin35CMS.php, the problem went away:
Code:
$login = utf8_to_entities($login);
Otherwise the 3.5.0 integration is working great!