Use strict unless you need to use anything that transitional provides...
If you need to use anything in Transitional, ask yourself "do I really need to use this" ? It's designed to make it easier for people to "transition" to better markup whilst not sacrificing all of the elements they currently use in their pages.
www.webstandards.org is a good place to find this kind of info.
As for the encoding, use iso-8859-1 as I believe it's more widely supported than utf-8. I'm not up to speed on all of the differences, but I believe utf-8 supports damn near everything, whilst iso-8859-1 is a fairly common/latin character set, which is why it's more likely to be supported. I could be completely wrong thought. I think Suho's down with all this character encoding jazz. I'm sure he'll pop by and slap me round if I'm leading you astray .