(in xfce-terminal 0.6.3) Many preferences take effect immediately on the currently running terminal, however, the default character encoding does not take effect immediately. The preference is saved to ~/.config/xfce4/terminal/terminalrc and takes effect on the NEXT invocation of xfce terminal. This is confusing to the user. It would be better if the change took effect immediately, or, if that is not possible, the dialog should indicate somehow that the setting will take effect on the next invocation.
Perhaps the term 'Default' is the problem. In other preferences the word 'initial' or 'new windows' is used to describe a setting that is saved and applied to new windows later. Perhaps changing the dialog to 'Initial character encoding' or 'Character encoding for new windows' would be clearer.
I think the term 'default' here can be understood as opposite to 'current'. For 'current' encoding, you have 'Set Encoding' menu; for the 'default' one, you have a setting in preferences. This makes sense to me. Other opinions?
Works as designed.