As Froyo does not have native support for Indian languages, I had to take the round about method for enabling Hindi text on it.
After rooting the phone (post warranty expiration), I downloaded Mangal.ttf and replaced the existing file DroidSansFallback.ttf in /system/fonts directory.
In other words, I deletd DroidSansFallback.ttf and renamed Mangal.ttf as DroidSansFallback.ttf.
Now, whenever WhatsApp is not able to render text using default font, it uses the fallback font. This happens on most cases where people send text in Hindi or Marathi, using Devanagari script.