I have installed xorg-x11-6.8.0-r4 . Someone at Xorg changed handling of compressed files in libXpm library. Instead of popen there is now s_popen (s_popen.c in Xpm directory). XpmReadFileToImage prepared command 'gunzip -qc "filename.xpm.gz"' and doublequotes are problem now, because s_popen does not handle quotes and is calling gunzip with filename.xpm.gz in quotes, and of course this filename doesn't exist. Reproducible: Always Steps to Reproduce: 1. 2. 3.
Can you test 6.8.1.902 and confirm that the problem also exists there? The change is part of a security fix.
I can't reproduce this with >=6.8.1.902, using sxpm on http://linux.tkdack.com/downloads/grub/penguins.xpm.gz. Reopen if you can.