I re-installed Windows 7 and the squares where there again, BUT I got rid of them now. It seems the solution, for me anyway, was to delete the file FNTCACHE.DAT in Windows\System32 and restart.

I tried this before re-installing windows 7 but it did not work, this time however it worked. For two weeks now I'm free of the squares and Chinese characters are displayed correctly too in explorer.
Yes it seems the problem with Chinese characters displayed as squares in explorer and the squares in mixer volume are going hand in hand and is a bug in windows 7 font cache or something...