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Inserting a string with embedded zero byte only inserts the string up to the first zero byte:
import sqlite3
connection = sqlite3.connect(':memory:')
cursor = connection.cursor()
cursor.execute('CREATE TABLE test (value TEXT)')
cursor.execute('INSERT INTO test (value) VALUES (?)', ('foo\x00bar',))
cursor.execute('SELECT value FROM test')
print(cursor.fetchone())
# expected output: (u'foo\x00bar',)
# actual output: (u'foo',)
Also, if there's already data inserted to a table like above with embedded zero bytes, the sqlite-API-to-Python-string conversion truncates the strings to just before the first zero byte.
Attaching a patch against 3.3 that fixes the problem. Basically, it uses PyUnicode_AsStringAndSize and PyUnicode_FromStringAndSize instead of the non-size variants.
Please review, as I'm not sure it covers each possible case.

Where are the tests? :)

What? Don't you SEE that it works correctly? :)
Attached an updated patch with a test case.
FTR, I also tried to make it possible to have the SQL statement include a zero byte, but it seems that sqlite3_prepare() (and also the newer sqlite3_prepare_v2()) always stops reading at the zero byte. See:
 http://www.sqlite.org/c3ref/prepare.html 

It would be nice to also have tests for the bytes and bytearray cases.
It also seems the generic case hasn't been fixed ("""PyObject_CallFunction(self->connection->text_factory, "y", val_str)""").

Attached an updated patch. The custom text_factory case is now fixed, and bytes, bytearray and custom factory are all tested.
I also added back the pysqlite_unicode_from_string() function, as this makes the patch a bit smaller. It also seems to me (only by looking at the code) that the sqlite3.OptimizedUnicode factory isn't currently working as documented.
Antoine: Do you happen to know what's the status of the OptimizeUnicode thingie? Has it been changed for a reason or is it just an error that happened during the py3k transition?

(Whoops, I didn't mean to change the magic source coding comment. Updating the patch once again.)

> Attached an updated patch. The custom text_factory case is now fixed,
> and bytes, bytearray and custom factory are all tested.
Thanks, looks good to me.
> Antoine: Do you happen to know what's the status of the
> OptimizeUnicode thingie? Has it been changed for a reason or is it
> just an error that happened during the py3k transition?
It looks obsolete in 3.x to me. If you look at the 2.7 source code, it
had a real meaning there. Probably we could simplify the 3.x source code
by removing that option (but better to do it in a separate patch).

New changeset 2e13011b3719 by Petri Lehtinen in branch '3.2':
sqlite3: Handle strings with embedded zeros correctly
http://hg.python.org/cpython/rev/2e13011b3719
New changeset 93ac4b12a750 by Petri Lehtinen in branch '2.7':
sqlite3: Handle strings with embedded zeros correctly
http://hg.python.org/cpython/rev/93ac4b12a750
New changeset 6f4044afa600 by Petri Lehtinen in branch 'default':
Merge branch 3.2
http://hg.python.org/cpython/rev/6f4044afa600