the c program is broken as it does not check the error code of fflush.
The real problem is buffering.

while True:
__print 'Hello'
__time.sleep (1)

will not notice an error until the buffers are flushed.
Running python t.py |head -n2 and killing head does not give me an
error. with PYTHONUNBUFFERED=1 or when using sys.stdout.flush() the
program breaks with:

~/ PYTHONUNBUFFERED=1 python t.py|head -n2                       
ralf@rat64 ok
Hello
Hello
Traceback (most recent call last):
  File "t.py", line 5, in <module>
    print "Hello"
IOError: [Errno 32] Broken pipe