I've done a little digging and have some more on this.
Downloaded and built the 0.8 beta (7.93). Turned on the history module.
Still can't see the text sent by one of my friends, but the chat logs revealed something interesting; each of her lines was prefixed with ^[[1m^[[36m. The character pair ^[ is the ASCII ESC character. (These look VTxxx escape codes.)
The corresponding message I get in the chat display is that it can't parse the XML.
So, before I file a bug report, did I overlook a text processing option that I need to turn on? I've been through the docs and looked at the switches I can set, but I haven't seen anything that may help.