Hello Vishal. 
I saw video. you recorded. Actions i made to reproduce bug are following
latest trunk of server,web, addons
i connect to server via web localhost:8069
create new database with no demo data , english language.
After creation of new database i setup module base_contact, dont do any changes in access rights (partner manager, extended etc.)
i go to 'purchases' menu, select contacts, press new button, fill first name, second name, then click save
result - error
SERVER LOG:
[2012-01-23 13:40:38,305][?] ERROR:db.cursor:bad query: insert into "res_partner_contact" (id,"website","first_name","last_name","title","mobile","photo","country_id","birthdate","email","lang_id","active","comment",create_uid,create_date) values (3,%s,%s,%s,%s,%s,%s,%s,%s,%s,%s,%s,%s,%s,now())
Traceback (most recent call last):
  File "/home/prospwro/openerp/server/openerp/sql_db.py", line 214, in execute
    res = self._obj.execute(query, params)
TypeError: can't escape unicode to binary
[2012-01-23 13:40:38,306][?] ERROR:web-services:Uncaught exception
Traceback (most recent call last):
  File "/home/prospwro/openerp/server/openerp/osv/osv.py", line 120, in wrapper
    return f(self, dbname, *args, **kwargs)
  File "/home/prospwro/openerp/server/openerp/osv/osv.py", line 175, in execute
    res = self.execute_cr(cr, uid, obj, method, *args, **kw)
  File "/home/prospwro/openerp/server/openerp/osv/osv.py", line 163, in execute_cr
    return getattr(object, method)(cr, uid, *args, **kw)
  File "/home/prospwro/openerp/server/openerp/osv/orm.py", line 4154, in create
    cr.execute('insert into "'+self._table+'" (id'+upd0+") values ("+str(id_new)+upd1+')', tuple(upd2))
  File "/home/prospwro/openerp/server/openerp/sql_db.py", line 152, in wrapper
    return f(self, *args, **kwargs)
  File "/home/prospwro/openerp/server/openerp/sql_db.py", line 214, in execute
    res = self._obj.execute(query, params)
TypeError: can't escape unicode to binary

POPUP SCREEN IN WEB CLIENT:

Client Traceback (most recent call last):
  File "/home/prospwro/openerp/server/openerp/addons/web/common/http.py", line 180, in dispatch
    response["result"] = method(controller, self, **self.params)
  File "/home/prospwro/openerp/server/openerp/addons/web/controllers/main.py", line 820, in create
    r = m.create(data, req.session.eval_context(req.context))
  File "/home/prospwro/openerp/server/openerp/addons/web/common/openerplib/main.py", line 250, in proxy
    args, kw)
  File "/home/prospwro/openerp/server/openerp/addons/web/common/openerplib/main.py", line 117, in proxy
    result = self.connector.send(self.service_name, method, *args)
  File "/home/prospwro/openerp/server/openerp/addons/web/common/http.py", line 609, in send
    raise fault


Server Traceback (most recent call last):
  File "/home/prospwro/openerp/server/openerp/addons/web/common/http.py", line 590, in send
    result = openerp.netsvc.dispatch_rpc(service_name, method, args)
  File "/home/prospwro/openerp/server/openerp/netsvc.py", line 324, in dispatch_rpc
    result = ExportService.getService(service_name).dispatch(method, params)
  File "/home/prospwro/openerp/server/openerp/service/web_services.py", line 583, in dispatch
    res = fn(db, uid, *params)
  File "/home/prospwro/openerp/server/openerp/osv/osv.py", line 166, in execute_kw
    return self.execute(db, uid, obj, method, *args, **kw or {})
  File "/home/prospwro/openerp/server/openerp/osv/osv.py", line 120, in wrapper
    return f(self, dbname, *args, **kwargs)
  File "/home/prospwro/openerp/server/openerp/osv/osv.py", line 175, in execute
    res = self.execute_cr(cr, uid, obj, method, *args, **kw)
  File "/home/prospwro/openerp/server/openerp/osv/osv.py", line 163, in execute_cr
    return getattr(object, method)(cr, uid, *args, **kw)
  File "/home/prospwro/openerp/server/openerp/osv/orm.py", line 4154, in create
    cr.execute('insert into "'+self._table+'" (id'+upd0+") values ("+str(id_new)+upd1+')', tuple(upd2))
  File "/home/prospwro/openerp/server/openerp/sql_db.py", line 152, in wrapper
    return f(self, *args, **kwargs)
  File "/home/prospwro/openerp/server/openerp/sql_db.py", line 214, in execute
    res = self._obj.execute(query, params)
TypeError: can't escape unicode to binary