The _PyString_Resize function in stringobject.c[0] takes in a PyObject ** and a Py_ssize_t newsize. Where Py_ssize_t is often a typedef for ssize_t(a signed version of size_t). As such the newsize parameter could be negative. 
The code checks for when the newsize is negative like so:

 int
_PyString_Resize(PyObject **pv, Py_ssize_t newsize)
{
...
    if (!PyString_Check(v) || Py_REFCNT(v) != 1 || newsize < 0 ||
        PyString_CHECK_INTERNED(v)) {
        *pv = 0;
        Py_DECREF(v);
        PyErr_BadInternalCall();
        return -1;
    }

Unfortunately, a few lines below it does the following:
 *pv = (PyObject *)
        PyObject_REALLOC((char *)v, PyStringObject_SIZE + newsize);

so now if PyStringObject_SIZE + newsize is enough to wrap around then realloc through python will end up allocating insufficient space for the 'new' string. The python interpreter is likely to crash on this line --> 

    sv->ob_sval[newsize] = '\0';

 
I haven't tried to reproduce this in the python interpreter. 
IMHO the code should be checking that newline + PyStringObject_SIZE is non-negative. 


[0] - http://svn.python.org/projects/python/trunk/Objects/stringobject.c

Let's take an example: on a 32bit system, call
   _PyString_Resize(&s, 0x7ffffff8)
Then PyStringObject_SIZE + newsize is something like -0x7ffffff8 (yes, it wraps around and is a negative number)
But when cast to an unsigned size_t (because that's what PyObject_REALLOC declares as parameter), it becomes 0x80000008, which is correct even if it is very likely to fail.
Did you experience something different?

Yes my bad :-) I got my C test case wrong.