that setting in terminal is for you to read chinese properlyfor font's looking. well, generally if you use some default font packs , it will look like that.
for me, I manually choose the font for terminal to be courier , so that it will look much better. (when i was in FC)
some taiwanese got a very nice font for chinese, it is like 楷书? i am not know exact name, which will give a better looking for you whole system
. yes, add the settings for LC_TYPE will help and please notice that, LC_ALL will overwrite your other LC_* settings
谢谢