The data is being stored as numeric character references (NCRs), like this: من etc. But, the state name field is a varchar(64). So, the data is being truncated to fit. You could try changing the state_name column to be of the type 'text'. I have not tested the effect that has on the rest of VirtueMart. You could try it and see.
As for why it is being stored as numeric character references, that is probably because the page with the state form is encoded in something other than UTF-8. So, the browser sends back NCRs. I'm not sure about this, though, because I've not looked deeply into the encoding issues in VirtueMart and Joomla yet.
You might have a look through the forums to see whether (and how) UTF-8 can be handled correctly.
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