Worked as expected for me on Mac OS X 10.4.10 running from
the trunk (you didn't mention what version you were using).
In ~/tmp/deep I created a maximally nested directory tree from the shell like so:

    cd /Users/skip/tmp/deep
    for i in `range 1000` ; do
        x=`printf %04d $i`
        echo $x
        mkdir $x
        cd $x
    done

where the range command is analogous to Python's range
builtin:

    % range 20
    0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

The for loop barfed after making directory 0205.

In Python I then executed these statements:

    import os.path
    base = "/Users/skip/tmp/deep"
    for x in range(210):
        subdirs = os.listdir(base)
        base = os.path.join(base, subdirs[0])
        print base

This went until it got to dir 0200 where it raised an
OSError:

    [Errno 63] File name too long: '/Users/skip/tmp/deep/0000/0001/.../0199/0200'

which stands to reason since base was 1025 characters long
at that point.  MAXPATHLEN is defined to be 1024 on my
system, so the OSError is to be expected.

Skip