I saw this problem when I upgraded from dapper to edgy.
According to packages.ubuntu.com dapper has xfonts-utils 6.8.2.1-5 and update-fonts-dir from this package doesn't understand --x11r7-layout yet.
When edgy gets released people will run into this problem if xfonts-utils isn't upgraded before gsfonts-x11.
I saw this problem when I upgraded from dapper to edgy.
According to packages.ubuntu.com dapper has xfonts-utils 6.8.2.1-5 and update-fonts-dir from this package doesn't understand --x11r7-layout yet.
When edgy gets released people will run into this problem if xfonts-utils isn't upgraded before gsfonts-x11.