Yeah did you install the mingw port of iconv?  It can be a little
tricky.  Email me for help.  I almost did a writeup of steps for
building mignw at
http://wiki.rubyonrails.org/rails/pages/Win32MingwInstall (just random
notes, but maybe helpful).
It works with 1.8.6.  Does iconv with with your 1.8.6.?  Sometimes you
have to do a hack job to get the right libs in the right places with
mingw.
GL
-Roger