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If any directory higher up in the hierarchy contains unicode chars, tarfile.open fails with UnicodeDecodeError. Attached script reproduces this error.
[tmp]% python tarfilefail.py 
Traceback (most recent call last):
 File "tarfilefail.py", line 9, in <module>
 tarfile.open(file_name, 'w')
 File "/usr/lib/python2.6/tarfile.py", line 1682, in open
 return cls.taropen(name, mode, fileobj, **kwargs)
 File "/usr/lib/python2.6/tarfile.py", line 1692, in taropen
 return cls(name, mode, fileobj, **kwargs)
 File "/usr/lib/python2.6/tarfile.py", line 1527, in __init__
 self.name = os.path.abspath(name) if name else None
 File "/usr/lib/python2.6/posixpath.py", line 338, in abspath
 path = join(os.getcwd(), path)
 File "/usr/lib/python2.6/posixpath.py", line 70, in join
 path += '/' + b
UnicodeDecodeError: 'ascii' codec can't decode byte 0xe2 in position 17: ordinal not in range(128)
[tmp]%

It looks like tarfile doesn't support unicode filenames. You should try to encode your input filename to the file system default encoding (sys.getfilesystemencoding()), or avoid using unicode for tar filenames.

I proposed a workaround, the real bug is that os.path.abspath() doesn't support unicode... And this bug was already fixed 7 weeks ago by r78247 (issue #3426).
http://svn.python.org/view/python/trunk/Lib/posixpath.py?r1=78247&r2=78246&pathrev=78247
Python 2.6.5 and 2.7b1 are fixed. So please upgrade :-)