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Error handling of PyUnicode_EncodeDecimal() is broken by design. The caller cannot know the size of the output buffer because each error handler produce a variable output, whereas the caller has to allocate 
this buffer and it is not possible to specify the size of the output buffer.
I propose to raise a ValueError if the error handler is different than "strict" and do this change in Python 2.7, 3.2 and 3.3.
In Python 2.7 code base, PyUnicode_EncodeDecimal() is always called with 
errors=NULL. In Python 3.x, the function is no more called.
Attached patch is for Python 3.2.
See also the issue #13093.

I'm only using the function with the NULL error handler. If I had
to use 'xmlcharrefreplace', presumably I'd overallocate 'output'
for the worst case scenario: sizeof("&#4294967295") per encoded
character.
It's hard to tell if people are using this feature. PyUnicode_EncodeDecimal()
was always undocumented (#8646), but part of the official Unicode API.

> I'm only using the function with the NULL error handler.
I don't think that anyone uses it without something else. The function is used to prepare a string input for a function converting a string to an integer. I don't see how xmlcharrefreplace can be useful.

Hum, I only changed PyUnicode_EncodeDecimal in Python 3.3, I prefer to not touch stable releases (2.7, 3.2).
New changeset a20fae95618c by Victor Stinner in branch 'default':
Close #13093: PyUnicode_EncodeDecimal() doesn't support error handlers
http://hg.python.org/cpython/rev/a20fae95618c
(Oops, I specified the wrong issue number: fixed in 9a712ad593bb)