If you haven't fixed your problem yet I may have a solution for you. I had the same problem with my Mandrake 10.1 All the fonts were about 1 pixel high. However when I went into terminal the font was readable. If you can get into terminal type 'xf86cfg' under root. This will bring up the X setup. Click on Expert mode, then click on monitor...find the fields that say 'height (mm)' and 'width (mm)'
See if they match the actual dimensions of your screen in mm. If it doesn't, if the numbers are not there or they are too large modify them. I had the problem on a Gateway 27" monitor. I ended up entering the dimensions of my 15" LCD display 305 height 230 width. Then close expert mode with the close button on the lower left, then click the quit button on the lower right of the xf86cfg window. It will then ask you to save the .conf file. leave it as is and save twice. Then restart X using Ctrl+Alt+backspace and see if your font is better. I found that the smaller the dimensions I put in the larger the fonts became.
There may be another issue or another way to do things, but this is the simplest way I have found to solve the problem and exerything works fine. Hope this helps.