Psql 'Expanded display (\x)' behaviour

Hello!
I'm new to this list and hope it is the right one (I posted to
General and Novice but got no answer).

I know that issues concerning the (erroneously) so called extended ASCII
chars are of partial interest to English speaking people ... so I should
be very grateful if any of you could confirm that:
toggling on/off the 'Expanded display' (in psql) does affect the display
of non-ascii chars.

Regards,
Ennio.

-----------------------
PS: I'm using:
Linux ...... 2.2.19pre17 #1 Tue Mar 13 22:37:59 EST 2001 i586 unknown
PostgreSQL 7.2.1 on i686-pc-linux-gnu, compiled by GCC 2.95.4
$ /usr/lib/postgresql/bin/pg_controldata /var/lib/postgres/data
[cut]
LC_COLLATE: it_IT
LC_CTYPE: it_IT

but tried other charsets with the same result: accented letters display
ok only when 'expanded display' is turned off (in which case, however,
the pager doesn't work!).