I upgraded to Karmic and, as promised, the problem is gone.
** Changed in: gdm (Ubuntu)
Status: Invalid => Fix Released
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GDM locale.conf format issue gives ugly language options
https://bugs.launchpad.net/bugs/436257
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Thank you for your bug report, did you try on karmic? The new gdm
version should be used the iso-codes list to build the language combo
** Changed in: gdm (Ubuntu)
Importance: Undecided => Low
** Changed in: gdm (Ubuntu)
Status: New => Incomplete
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GDM locale.conf format issue gives
