process-environment in mule dired buffers

[Jeff Mincy]

I'm running redhat 21.4.6 mule.

The file /usr/share/xemacs-21.4.6/lisp/mule/mule-init.el

contains

    (add-hook
     'dired-mode-hook
     (lambda ()
       (make-local-variable 'process-environment)
       (setenv "LC_MESSAGES" "C")
       (setenv "LC_TIME"     "C")))

This causes strange process environment results in dired buffers.

After evaling this:
  (setenv "FOO" nil)

This code snippet
  (let ((process-environment (copy-list process-environment)))
    (setenv "FOO" (concat "MORE-FOO:" (or (getenv "FOO") "NULL")))
    (or (getenv "FOO") (error "foo"))
    (split-string (exec-to-string "echo $FOO") "[:\n]"))

should return
  ("MORE-FOO" "FOO" "")

After evaling this:
  (setenv "FOO" "BAR:BAZ")
the code should return 
  ("MORE-FOO" "BAR" "BAZ" "")

In dired buffers, I get different results:
  ("" "")
and
  ("BAR" "BAZ" "")

It appears that call-process does not see the dired local
process-environment

Am I hallucinating here?

-jeff