The really key argument that hasn't been addressed here is why does such a behavior belong in psql, rather than elsewhere? Surely legibility problems aren't unique to psql users. Moreover, there are exactly parallel facilities for other datatypes on the server side: think DateStyle or bytea_output. So if you were trying to follow precedent rather than invent a kluge, you'd have submitted a patch to create a GUC that changes the output of boolout().
I find Tom's analogy to datestyle and bytea_output convincing.
+1 for a GUC that changes the behaviour of boolout.
And also +1 for doing anything at all to improve on the t/f output. Those glyphs are way too similar to each other.
I think U+2713 and U+2717 (✓ and ✗) are the obvious choices for a boolean, but if we have a GUC we can set this to taste.
