I have same bug only running a Bazaar server from inetd.
Dedicated server was worked ok.

These are the traces:

bzr branch bzr://localhost/repo
bzr: ERROR: bzrlib.errors.ReadingCompleted: The MediumRequest '<bzrlib.smart.medium.SmartClientStreamMediumRequest object at 0xb6c29dec>' has already had finish_reading called upon it - the request has been completed and no more data may be read.

Traceback (most recent call last):
  File "/usr/lib/python2.5/site-packages/bzrlib/commands.py", line 846, in run_bzr_catch_errors
    return run_bzr(argv)
  File "/usr/lib/python2.5/site-packages/bzrlib/commands.py", line 797, in run_bzr
    ret = run(*run_argv)
  File "/usr/lib/python2.5/site-packages/bzrlib/commands.py", line 499, in run_argv_aliases
    return self.run(**all_cmd_args)
  File "/usr/lib/python2.5/site-packages/bzrlib/builtins.py", line 916, in run
    from_location)
  File "/usr/lib/python2.5/site-packages/bzrlib/bzrdir.py", line 789, in open_tree_or_branch
    bzrdir = klass.open(location)
  File "/usr/lib/python2.5/site-packages/bzrlib/bzrdir.py", line 667, in open
    return BzrDir.open_from_transport(t, _unsupported=_unsupported)
  File "/usr/lib/python2.5/site-packages/bzrlib/bzrdir.py", line 704, in open_from_transport
    redirected)
  File "/usr/lib/python2.5/site-packages/bzrlib/lazy_import.py", line 125, in __call__
    return obj(*args, **kwargs)
  File "/usr/lib/python2.5/site-packages/bzrlib/transport/__init__.py", line 1616, in do_catching_redirections
    return action(transport)
  File "/usr/lib/python2.5/site-packages/bzrlib/bzrdir.py", line 681, in find_format
    transport, _server_formats=_server_formats)
  File "/usr/lib/python2.5/site-packages/bzrlib/bzrdir.py", line 1440, in find_format
    return format.probe_transport(transport)
  File "/usr/lib/python2.5/site-packages/bzrlib/bzrdir.py", line 1450, in probe_transport
    format_string = transport.get(".bzr/branch-format").read()
  File "/usr/lib/python2.5/site-packages/bzrlib/transport/remote.py", line 189, in get
    return StringIO(self.get_bytes(relpath))
  File "/usr/lib/python2.5/site-packages/bzrlib/transport/remote.py", line 200, in get_bytes
    return smart_protocol.read_body_bytes()
  File "/usr/lib/python2.5/site-packages/bzrlib/smart/protocol.py", line 590, in read_body_bytes
    bytes = self._request.read_bytes(bytes_wanted)
  File "/usr/lib/python2.5/site-packages/bzrlib/smart/medium.py", line 370, in read_bytes
    raise errors.ReadingCompleted(self)
ReadingCompleted: The MediumRequest '<bzrlib.smart.medium.SmartClientStreamMediumRequest object at 0xb6c29dec>' has already had finish_reading called upon it - the request has been completed and no more data may be read.

bzr 1.5 on python 2.5.2 (linux2)
arguments: ['/usr/bin/bzr', 'branch', 'bzr://localhost/repo']
encoding: 'UTF-8', fsenc: 'UTF-8', lang: 'ru_RU.UTF-8'
plugins:
  bzrtools             /usr/lib/python2.5/site-packages/bzrlib/plugins/bzrtools [1.5.0]
  launchpad            /usr/lib/python2.5/site-packages/bzrlib/plugins/launchpad [unknown]
  rebase               /usr/lib/python2.5/site-packages/bzrlib/plugins/rebase [0.3.0]
  svn                  /usr/lib/python2.5/site-packages/bzrlib/plugins/svn [0.4.10]
*** Bazaar has encountered an internal error.
    Please report a bug at https://bugs.launchpad.net/bzr/+filebug
    including this traceback, and a description of what you
    were doing when the error occurred.