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Attempting to read from stdout of a running process seems broken on Python3.2. I've been able to reproduce this on Ubuntu 11.4 and Windows 7 (with /bin/sh installed as part of git for windows)
Python 3.2 (r32:88445, Dec 8 2011, 15:26:51) 
[GCC 4.5.2] on linux2
Type "help", "copyright", "credits" or "license" for more information.
>>> from subprocess import Popen, PIPE
>>> p=Popen(["/bin/sh"], stdin=PIPE, stderr=PIPE, stdout=PIPE)
>>> p.stdin.write(b"echo hello\n")
11
>>> p.stdout.readline()
<stuck>
>>> from subprocess import Popen, PIPE
>>> p=Popen(["/bin/sh"], stdin=PIPE, stderr=PIPE, stdout=PIPE)
>>> p.stdin.write(b"echo hello\n")
11
>>> p.stdout.read(2)
<stuck>
For comparison, on python 2.7 (again, linux and windows:
Python 2.7.1+ (r271:86832, Apr 11 2011, 18:05:24) 
[GCC 4.5.2] on linux2
Type "help", "copyright", "credits" or "license" for more information.
>>> from subprocess import Popen, PIPE
>>> p=Popen(["/bin/sh"], stdin=PIPE, stderr=PIPE, stdout=PIPE)
>>> p.stdin.write(b"echo hello\n")
>>> p.stdout.readline()
'hello\n'
>>>

Works with 3.2.2:
Python 3.2.2+ (3.2:9ef20fbd340f, Oct 15 2011, 21:22:07) 
[GCC 4.5.2] on linux2
Type "help", "copyright", "credits" or "license" for more information.
>>> from subprocess import Popen, PIPE
>>> p=Popen(["/bin/sh"], stdin=PIPE, stderr=PIPE, stdout=PIPE)
>>> p.stdin.write(b"echo hello\n")
11
>>> p.stdout.readline()
b'hello\n'
Try calling p.stdin.flush() perhaps?

hmm, it does work when i call flush, but it works perfectly fine without flushing on python2.x... i guess this has to do with str/bytes again. maybe this should be documented somewhere? thanks for the tip though.

Nothing to do with str/bytes, actually; I think it was fixed in #11459 (changeset 7451da272111), so you might want to upgrade your Python 3.2 (or use the flush() workaround).