Comment 7 for bug 339642

This bugis still live and kicking.
The problem is in iplib.py: source=source.encode(self.stdin_encoding)

This is wrong whenever there is a unicode string in source.

A simple:

  x = u"ação"

with the offending line becomes:

 x = u'a\xc3\xa7\xc3\xa3o'

Notice that the encoding is done inplace,and the u"" is kept after the encoding. This is wrong.
I have removed the line, and it is now working for me. Do not know enough of IPython internals to predict side effects. I hope this helps.
regards,
Rod Senra