iconv - Detected an illegal character in input string

The illegal character is not in $matches[1], but in $xml

Try

iconv($matches[1], 'utf-8//TRANSLIT', $xml);

And showing us the input string would be nice for a better answer.

If you used the accepted answer, however, you will still receive the PHP Notice if a character in your input string cannot be transliterated:

<?php
$cp1252 = '';

for ($i = 128; $i < 256; $i++) {
    $cp1252 .= chr($i);
}

echo iconv("cp1252", "utf-8//TRANSLIT", $cp1252);

PHP Notice:  iconv(): Detected an illegal character in input string in CP1252.php on line 8

Notice: iconv(): Detected an illegal character in input string in CP1252.php on line 8

So you should use IGNORE, which will ignore what can't be transliterated:

echo iconv("cp1252", "utf-8//IGNORE", $cp1252);