I run into this problem when I start a Python app as a subprocess from Erlang (open_port() function).  The PYTHONIOENCODING fix works when I launch my py app via pythonw.exe, but it does *not* work when I use the cx-freeze version of the app.

I am using the Win32GUI base for cx-freeze which appears to be a thin WinMain() wrapper around Py_Initialize().  I am going to continue investigating the cx-freeze related problems.

I am using Python 3.2 under Windows.  The failure is basically silent under Windows (generic MSVC runtime error), so I wasted a lot time figuring out what the problem actually was.  Python 2 doesn't seem to have this problem.