When the game starts up in a new version and detects the existing settings file
is unreadable, it switches to English locale, even though the default locale
option is "system default".

Only once the settings file is overwritten and Freedroid is restarted (and the
new settings file is interpreted), the system default will be applied.

(I guess this may or may not be considered a bug - up to you. It is unexpected
behavior to me.)

I was not able to reproduce.

Without a ~/.freedroid_rpg dir, or without a fdrpg.cfg file in it, or with a
wrong content in that file, in any case the game started with my system locale.

Looking at the source, the game is initialized using the system locale, and only
if a locale definition is found in the config file do we switch to an other
locale...

So, I do not understand why it was not working for you.

Can you reproduce ? What is your system locale (please copy/paste the output of
the 'locale' command) ?

My 'locale' Output:

$ locale
LANG=de_DE.UTF-8
LANGUAGE=
LC_CTYPE="de_DE.UTF-8"
LC_NUMERIC="de_DE.UTF-8"
LC_TIME="de_DE.UTF-8"
LC_COLLATE="de_DE.UTF-8"
LC_MONETARY="de_DE.UTF-8"
LC_MESSAGES="de_DE.UTF-8"
LC_PAPER="de_DE.UTF-8"
LC_NAME="de_DE.UTF-8"
LC_ADDRESS="de_DE.UTF-8"
LC_TELEPHONE="de_DE.UTF-8"
LC_MEASUREMENT="de_DE.UTF-8"
LC_IDENTIFICATION="de_DE.UTF-8"
LC_ALL=
$

Since my old settings file was since replaced by a new one I think I will not be
able to reproduce this anymore.

Hard to fix without being able to reproduce.
Commit 45cfc2c8 will hopefully help to avoid that bug.

I close the ticket for now.
Re-open it if the bug appears again, but please attach the offending fdrpg.cfg
before the game rewrite it.