As a variant: for example i do the following:

Run command: bzr init-repository --no-trees sftp://bazaar.09248.ru/bzr
Connected (version 2.0, client OpenSSH_4.3)

bzr: ERROR: exceptions.UnicodeDecodeError: 'ascii' codec can't decode byte 0xc0 in position 4: ordinal not in range(128)

Traceback (most recent call last):
  File "bzrlib\commands.pyo", line 853, in exception_to_return_code
  File "bzrlib\commands.pyo", line 1055, in run_bzr
  File "bzrlib\commands.pyo", line 661, in run_argv_aliases
  File "bzrlib\commands.pyo", line 665, in run_direct
  File "bzrlib\cleanup.pyo", line 122, in run_simple
  File "bzrlib\cleanup.pyo", line 156, in _do_with_cleanups
  File "C:/Program Files/Bazaar/plugins\qbzr\lib\commands.py", line 788, in run
  File "C:/Program Files/Bazaar/plugins\qbzr\lib\subprocess.py", line 786, in run_subprocess_command
  File "bzrlib\commands.pyo", line 1055, in run_bzr
  File "bzrlib\commands.pyo", line 661, in run_argv_aliases
  File "bzrlib\commands.pyo", line 665, in run_direct
  File "bzrlib\cleanup.pyo", line 122, in run_simple
  File "bzrlib\cleanup.pyo", line 156, in _do_with_cleanups
  File "bzrlib\builtins.pyo", line 1817, in run
  File "bzrlib\transport\__init__.pyo", line 368, in ensure_base
  File "bzrlib\transport\sftp.pyo", line 662, in mkdir
  File "bzrlib\transport\sftp.pyo", line 638, in _mkdir
  File "bzrlib\transport\sftp.pyo", line 397, in _get_sftp
  File "bzrlib\transport\sftp.pyo", line 389, in _create_connection
  File "bzrlib\transport\ssh.pyo", line 330, in connect_sftp
  File "bzrlib\transport\ssh.pyo", line 326, in _connect
  File "bzrlib\transport\ssh.pyo", line 540, in _paramiko_auth
  File "bzrlib\config.pyo", line 1288, in get_password
  File "C:/Program Files/Bazaar/plugins\qbzr\lib\subprocess.py", line 735, in get_password
  File "C:/Program Files/Bazaar/plugins\qbzr\lib\subprocess.py", line 726, in _get_answer_from_main
  File "C:/Program Files/Bazaar/plugins\qbzr\lib\subprocess.py", line 847, in bencode_prompt
UnicodeDecodeError: 'ascii' codec can't decode byte 0xc0 in position 4: ordinal not in range(128)

bzr 2.1.1 on python 2.5.4 (Windows-Vista-6.1.7600)
arguments: ['C:\\Program Files\\Bazaar\\bzr.exe', 'qsubprocess', '--bencode', 'l15:init-repository10:--no-trees26:sftp://bazaar.09248.ru/bzre']
encoding: 'cp1251', fsenc: 'mbcs', lang: None
plugins:
  bzrtools             C:\Program Files\Bazaar\plugins\bzrtools [2.1.0]
  explorer             C:\Program Files\Bazaar\plugins\explorer [1.0.1]
  launchpad            C:\Program Files\Bazaar\plugins\launchpad [2.1.1]
  netrc_credential_store C:\Program Files\Bazaar\plugins\netrc_credential_store [2.1.1]
  news_merge           C:\Program Files\Bazaar\plugins\news_merge [2.1.1]
  qbzr                 C:\Program Files\Bazaar\plugins\qbzr [0.18.4]
  rebase               C:\Program Files\Bazaar\plugins\rebase [0.5.5]
  svn                  C:\Program Files\Bazaar\plugins\svn [1.0.2]
  upload               C:\Program Files\Bazaar\plugins\upload [1.0.0dev]
  xmloutput            C:\Program Files\Bazaar\plugins\xmloutput [0.8.7.dev]

*** Bazaar has encountered an internal error.  This probably indicates a
    bug in Bazaar.  You can help us fix it by filing a bug report at
        https://bugs.launchpad.net/bzr/+filebug
    including this traceback and a description of the problem.