We do need LATIN1.
The error message is:
initdb: encoding mismatch
The encoding you selected (LATIN1) and the encoding that the
selected locale uses (WIN1252) do not match. This would lead to
misbehavior in various character string processing functions.
Rerun initdb and either do not specify an encoding explicitly,
or choose a matching combination.
The version is 8.3.7.
It worked fine with 8.2.4