problem with nasty latin2 sorting

Hello,
I've got a problem with sorting polish words in postgresql 7.4.2

For example, I've got couple of polish cities in my table 'x', results 
of sorting are:
(select city from x order by city asc)

Bydgoszcz
Gdańsk
Iława
Łódź
Żarnów
Malbork
Warszawa

So "Żarnów" is placed in wrong place, because it should be found after 
letter "Z" ??

What's wrong? Is there any patch to fix this? Does anybody had similar 
problem?
I belive that postgres was compiled with "--enable-locale", and the 
right locale is set.

Anna Domachowska