I installed Fedora 10 on my media PC, connected to my 50" DLP TV via vga connection.

When Fedora started, I was defaulted to GNOME, and my fonts and resolution looked good.

I create a /etc/sysconfig/desktop file with:
DESKTOP="KDE"
DISPLAYMANAGER="KDE"

and restarted.

While the screen resolution still looks good, the windows are unreadable because the fonts are too small. It started with the login screen. I could not read the user ID. Everything from Firefox to Konsole window are not set properly.

Is there a kde specific file to adjust these fonts?

System Settings > Look & Feel > Appearance > Fonts should be able to change the fonts, at least for your user session.

This does not do it. The font issues are even visible at the login screen. There is something more global that needs to change.

KDE uses the Xorg Font config infrastructure for this, please ensure the font system is correctly configured.

You could check for KDE4 / KDM related folders under /etc, but I do not think that there will be any control over fonts ( at least not in the manner you describe ) available there.