ediff-save-buffer and coding systems

[Per Starback]

In GNU Emacs 21.2.1 (i386-redhat-linux-gnu, X toolkit, Xaw3d scroll bars)
 of 2002-09-18 on tempus
configured using `configure  i386-redhat-linux --prefix=/usr --exec-prefix=/usr 
--bindir=/usr/bin --sbindir=/usr/sbin --sysconfdir=/etc --datadir=/usr/share 
--includedir=/usr/include --libdir=/usr/lib --libexecdir=/usr/libexec 
--localstatedir=/var --sharedstatedir=/usr/com --mandir=/usr/share/man 
--infodir=/usr/share/info --with-gcc --with-pop --with-sound'
Important settings:
  value of $LC_ALL: nil
  value of $LC_COLLATE: nil
  value of $LC_CTYPE: sv_SE.ISO8859-1
  value of $LC_MESSAGES: nil
  value of $LC_MONETARY: nil
  value of $LC_NUMERIC: nil
  value of $LC_TIME: nil
  value of $LANG: en_US.iso885915
  locale-coding-system: iso-latin-1
  default-enable-multibyte-characters: t

And also in 21.2.95.

        1. emacs -q

        2. C-x b 1 RET C-x 8 " a RET
           C-x b 2 RET C-x 8 " o RET
        (these two buffers have latin-1 characters)

        3. M-x ediff-merge-buffers RET 1 RET 2 RET

        4. w d    [which runs ediff-save-buffer]
        I get a question "File to save in: ~/" and answer that.

Result:

        I get a buffer *Warning* with

                These default coding systems were tried:
                  iso-latin-1
                However, none of them safely encodes the target text.
                
                Select one of the following safe coding systems:
                  utf-8 raw-text emacs-mule no-conversion

        and a question about what coding system I want to use.

Expected result:

        I expected it to save with iso-latin-1 since there are no
        other characters in the buffers "1" and "2".

Additional comments:

        At that moment *ediff-diff* has \201's in front of the two
        latin-1 characters.