Toggling 'Expanded display on' (\x) confuses encodings

Hi,
After many testings I reached the conclusion that toggling the 'Expanded
display on' will produce an altered display of characters over ascii
127. I suspect that the \x function 'forgets' to call the character
set with which the table has been construed. Could any of the 'experts'
suggest where to look in the source files to try to correct this?
Thanks,
    Ennio

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