Did you run locale-gen? Also, looking at your locale.conf I suspect "C" (which is, according to cplusplus.com because I'm too lazy to google further, the minimal locale. It is a rather neutral locale which has the same settings across all systems and compilers, and therefore the exact results of a program using this locale are predictable. This is the locale used by default on all C programs.) is the wrong locale setting if you want to run your system with non-ascii characters. I only have one line LANG=*.UTF-8 which does for my umlauts. I think if you remove your *=C assignments out of locale.conf and your current environment, it'll just work.
cheers! mar77i
