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When reading from text file on Windows Python ends loop on character 0x1A
sample.py:
number = 0
with open("sample.txt",'r') as f:
 for line in f:
 number += 1
	print line
print "File has 8 lines, but Python could read only ",number

AFAIK, this doesn't affect Python 3 under normal circumstances. A file could be manually set to text mode by calling msvcrt.setmode(f.fileno(), os.O_TEXT), but that's out of the norm.
In Python 2, on Windows interpreting ctrl+z (0x1a) as end-of-file is normal behavior in text mode. Read the remarks about [t]ext mode in the description of Microsoft's fopen implementation:
http://msdn.microsoft.com/en-us/library/yeby3zcb%28v=vs.90%29.aspx
If you use Python's universal newlines mode, e.g. open('sample.txt', 'rU'), then the underlying file is opened in binary mode and therefore will not interpret ctrl+z as the end-of-file marker.