Retain the case, but don't use it when testing for uniqueness. That way, I can type "accounts for proctors' attention.xlsx" and the filesystem will know what I mean. But when I list the contents of a directory, it would show up with its original casing.
Case insensitivity is locale-dependent, so you have to either pick a single locale and confuse users with other locales, or deal with the possibility that you could have two files in your filesystem that have the same name in your locale.
