sudo locale-gen en_US.UTF-8
sudo dpkg-reconfigure locales
juanluis, thanks this worked. Just have to remember to reboot before do anything.
What ceases to amaze me is how DO can put out stuff in prime time wasting everyones time with such an idiotic problem, there are posts all over the place and such a simple fix. Bad first hour on DO suffice to say ;(
I just had the same problem on a fresh droplet. The solution worked, however it's a bit weird that the linux images are not preconfigured correctly with working locale settings.