In the last PostgreSQL version (8.4) there is a small change for the problem with collation. The collation can be set per database, not per cluster. This means that using only one PostgreSQL instance it is possible to have many databases with different language settings.
What I keep on waiting for is to have to possibility of defining a collation for each column not only for each database. I hope it will be added in next versions.
What the collation is and how it was in the previous PostgreSQL version is described here: