Okay fine.... I stopped being lazy and found the solution by trial and error. So the trick is to change the system locale to Chinese (PRC) and then changing the system locale back to English (United States). I can now see the Simplified Chinese characters correctly in my buddyllist as well as in browser titles. I've attached a screenshot of the menus to get to the system locale. Basically go where you changed your input method and follow the screenshot below:
This is a bug with the IME, I think, but nothing a few changes and reboots won't fix! Good luck!