Huh. I've never had a stock Zencart installation fail validation, but my 1.5.4 test site (stevesh.com/demo) (custom template using Classic elements, but no other mods) gives me a "Sorry! This document cannot be checked." error message and this explanation:
Sorry, I am unable to validate this document because on line 354 it contained one or more bytes that I cannot interpret as utf-8 (in other words, the bytes found are not valid values in the specified Character Encoding). Please check both the content of the file and the character encoding indication.
The error was: utf8 "\x92" does not map to Unicode



