Looks like sort(1) prints the lines in the same order as Perl's sort does. So I guess the problem is that the locale itself does not treat i and y the same. (I don't know if that's possible at all.)

According to perldoc perllocale, the locale answers the question "which of these letters comes first". I don't think that the answer "neither i nor y comes first, but i comes first if it is the only difference in the whole word" is allowed.