I already posted this similar issue at http://tracker.moodle.org/browse/MDL-10704, but that time I thought this issue was just a small improvement for Moodle themes to display Khmer character properly and I didn't know that it also affect the installation process. And if necessary, you can just close the other issue. I tried to offer more information here.
I just downloaded Moodle 1.9 from its daily built and installed it in Khmer. I then realized that the problem also exist during the installation. As you can see in the screenshot below during my installation, the Khmer character are almost unreadable. There were space between each character. Khmer script is so complex. The way you type it is different from English. Most of the time, when you type a consonant and then a vowel, some part of that vowel will go before the consonant where the other part go after. So if we use the letter-spacing CSS option, it will just break the rendering.
I am not sure if changing to not using this letter-spacing will affect other part of Moodle but if it is not the big problem, please just do Khmer its favor.
Of cause, someone who install Moodle and aware of this CSS problem can just delete this letter-spacing in the related Moodle theme (as I did now with the Standard theme), but for the sake of upstream project we really want to see this problem be solved at Moodle itself, especially the upcoming 1.9.
To explain the problem, I have attached some screenshot (sorry if you don't understand Khmer but I also explain in English within the images)
2. http://www.flickr.com/photo_zoom.gne?id=1069716396&size=o (problem in Listbox)
Problems solved after commenting out letter-spacing (only two occurrences) in /theme/standard/styles_fonts.css: