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Worked fine till this morning. For some reason all the messages look partially UTF-8 encoded. Tried changing my preference but it didn't do any good. Tried utf8_decode(ing) the raw message in libgmail.php but it didn't do any good.
Use the libgmailer from CVS. This problem started near the end of Feb and was fixed last week.
You can also temporarily use the fix submitted today by a user http://sourceforge.net/forum/message.php?msg_id=4199084