"Most other string operations work nicely between normal and unicode strings"

Nope.  You *always* get errors if you mix Unicode with NON-ASCII data (unless you've messed up the system's default encoding, which is a bad thing to do if you care about portability).  Some examples:

>>> chr(128) + u"foo"
UnicodeDecodeError: 'ascii' codec can't decode byte 0x80 in position 0: ordinal not in range(128)
>>> u"foo".find(chr(128))
UnicodeDecodeError: 'ascii' codec can't decode byte 0x80 in position 0: ordinal not in range(128)

etc.  If there's a bug here, it's that you get a TypeError instead of a ValueError subclass.