setting the environment locale - linux, windows

This is probably somewhat offtopic, but it does relate to postgresql so...
Problem summary: I have a UTF-8 encoded database running on linux on
which upper() and lower() string functions ignore locale specific
characters.
To make things a bit more interesting, the development machines
(including the db server) are linux based, while the target servers
are a mixture of linux and windows servers.

I need to compare strings case insensitive. Proper collation would be
a plus, but I could live without it for the time beeing.
How does one set the e.g. german locale in linux? Or in windows? Is it
given as a parameter of initdb and frozen aftewards or does the
postmaster look to it's environment for this information (LC_ALL,
LC_CTYPE variables)?
Are there plans to enable assigning locale at the database level?

Tomislav