At the moment I'm setting up a ZenPhoto in a Windows Server 2003 (IIS6) and I was having problems with the setlocale. After few workarounds I found an easy solution for that, the only thing you have to do is to add a null as a last value of the function:
file: zp-core/functions-i18n.php
line: 245
updated line: $result = setlocale(LC_ALL, $locale.'.'.$encoding, $locale, null);
I hope you enjoy the fix.
I'll have to add here that I had the same mysterious problem using 1.2.8 - I got the error that the language wasn't supported by the server, and that warning in Setup.php about lack of support also. Adding that final null parameter fixed it for me as well.
Figured I would make a ticket for this just in case it was forgotten again.