> @loewis: I guess that your locale is still UTF-8.

To refute this claim, I reported that locale.getpreferredencoding
reports 'ANSI_X3.4-1968'. I was following your instructions exactly
(on Debian 4.0), and still, it opens successfully (when loaded through
File/Open). Should I do something else with it to trigger the error,
other than opening it?

When opening iso.py, I get a pop window titled "Decoding error",
with a message "Failed to Decode". This seems to be correct also.

So I still can't reproduce the problem.

I don't understand why you say that IDLE uses open(filename, 'r').
In IOBinding.IOBinding.loadfile, I see

            # open the file in binary mode so that we can handle
            # end-of-line convention ourselves.
            f = open(filename,'rb')