Problem with UTF-8

[Konstantinos Efstathiou <cefstat@purple.univ-littoral.fr>]

It seems that emacs can not display properly a text file with UTF-8 
encoding. Specifically, I do the following:

(1) Create a new buffer with UTF-8 encoding: C-x C-f test.txt
(2) Change the input method to greek: C-u C-\ greek
(3) Write some characters. Everything appears perfectly.
(4) Toggle the input method: C-\
(5) Save the file: C-x C-s
(6) Open the file: C-x C-f test.txt
Now all the greek characters appear as squares.

I am using GNU Emacs 21.3.50.1 (powerpc-apple-darwin7.0.0) under Mac OS 
X 10.3. When I open the file with TextEdit using the UTF-8 encoding and 
everything looks fine in there.

In my .emacs I have

(set-language-environment 'greek)
(set-default-coding-systems 'utf-8)
(prefer-coding-system 'utf-8)

Note also that if I set the proper variables for using iso-8859-7 
everything works great.