As /etc/locale.conf is now self generated, for reasons not known it adds all local info to this file.
Removing this local info and just leaving “LANG=en_GB.UTF-8” lets gnome-terminal work again.
The error could be calamares as that generates local but as far as I know this does not touch locale.conf only locale.gen. @philm wrote With filesystem 2022.06.08-2, it will automatically restore /etc/locale.conf if it did not already exist. so perhaps this is the culprit? Perhaps putting one in the overlay will work?
No putting one in the overlay with just “LANG=en_GB.UTF-8” in it still got populated with locale info again.
One could speculate why the string values are quoted as this is not standard (perhaps it has become standard) but it shouldn’t alter the meaning as the content is just a preset of environment variables.
If that is the file content then no system will understand!
My experience tells me only the LANG= is required the rest are optional. If there is more settings defined the corresponding language must be uncommented in locale.gen and generated using the locale-gen script.
EDIT
There’s definately something fishy with the Calamares installer