Actually this is a gdm bug. Reassigning.
(I also proposed a patch to fix it a while back; don't know if it was accepted,
but the issue might be resolved now.)
** Changed in: gdm (Ubuntu)
Sourcepackagename: xorg => gdm
Status: Confirmed => In Progress
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X server failure dialogue garbled (UTF-8 problem)
https://bugs.launchpad.net/bugs/54813
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Desktop Bugs, which is a bug contact for gdm in ubuntu.
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