More on character encoding in SELECTs

I'm running PostgreSQL 7.0.3 on RedHat 7.0 eng.
In the database I have several lines of data beginning with "Å", "Ä" or "Ö"
(swedish special characters).

When I do a SELECT xx FROM xx WHERE xx >= 'Å' in psql, it returns lines where
xx is starting with "A". With "Ö", it returns lines where xx starts with "O".

I've tried to set LC_ALL to sv_SE or swedish, nothing happens.
Is the rpm for Postgres 7.0.3 compiled with locale support? Does PostgreSQL
care at all? What can I do to make it right?

Database encoding is LATIN1.

It works fine on another system, the only difference is that the other
system is RedHat 7 swedish.

/Rolf