In Stein's Fourier Analysis Ch.7 he defines characters as follows.
Let $G$ be a finite Abelian Group with operation $*$, and $S^1$ be the unit circle in $\mathbb{C}$. $e: G \to S^1$ is a character on $G$ if $\forall x,y \in G$, $e(x * y) = e(x)e(y)$.
In exercise 5 on page 237, Stein asks us to show that the only characters on $S^1$ are $e_n (x) = e^{2\pi i nx}$, where $n \in \mathbb{Z}$. This is really confusing to me: is $x\in S^1$? This seems wrong to me, because then the image of the map is no longer contained in $S^1$. Is $x \in [0,2\pi]$? This also seems wrong, since then we have $e_\xi (x) = e^{2 \pi i \xi x}$ is also a character for any $\xi \in \mathbb{R}$, by the exponent rules. Therefore, I clearly don't understand the setup of the question, and would really appreciate some help!
Usually, when people ask about potential errors in books, either the book is wrong or they’re wrong. In this case, you’re both a bit wrong.
The book is wrong in that it introduces the circle group with the two alternatives that you consider:
But then in the exercise you refer to (and already in Example $2$ on p. $231$) it instead identifies the circle with $\mathbb R$ modulo $1$, i.e. the interval $[0,1]$ with endpoints identified.
The part where you’re wrong is where you write “since then we have $e_\xi(x)=\mathrm e^{2\pi\mathrm i\xi x}$ is also a character for any $\xi\in\mathbb R$, by the exponent rules”. That’s not true because e.g. $\frac23+\frac23\equiv\frac13\bmod1$, so you need to have $e_\xi\left(\frac23\right)\cdot e_\xi\left(\frac23\right)=e_\xi\left(\frac13\right)$, which only holds for integer $\xi$.
By the way, there’s also the footnote in Example $2$ on p. $231$, where characters on infinite groups are first introduced:
This also requires integer $\xi$, since the character would otherwise not be continuous at the endpoints of $[0,1]$.