I have yet to check out Lightroom 3. In Lightroom 2, the root cause for this problem was a bug in Lightroom: it would write IPTC metadata without specifying which encoding it was using.
HoudahGeo uses UTF-8 for IPTC data and adds the appropriate header. The effect of this is that IPTC data created previously by Lightroom will be read as if it were UTF-8.
You could try working around the problem by removing the CodedCharacterSet tag. After that I would expect the original IPTC to be readable again. IPTC written by HoudahGeo will however be garbled.
You may do so by running the following command in the directory where your images reside:
[CODE]/Applications/HoudahGeo.app/Contents/Resources/exiftool -iptc:codedcharacterset= *.jpg[/CODE]
This should be done between steps 3 and 4 of your workflow.
The other option would be to skip writing IPTC data in HoudahGeo. I.e. don't let HoudahGeo write out description, country, state or city.
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