As patched: 
diff -r 0926adcc335c Lib/test/test_fileinput.py
--- a/Lib/test/test_fileinput.py	Mon Feb 24 15:36:45 2014 -0500
+++ b/Lib/test/test_fileinput.py	Wed Feb 26 09:25:10 2014 -0600
@@ -218,8 +218,27 @@
         finally:
             remove_tempfiles(t1)
 
+class Test_hook_encoded(unittest.TestCase):
+    """Unit tests for fileinput.hook_encoded()"""
+
+    def test_modes(self):
+        # Unlikely UTF-7 is locale encoding
+        t1 = writeTmp(1, ["A\nB\r\nC\rD+IKw-"], mode="wb")
+        self.addCleanup(safe_unlink, t1)
+
+        def check(mode, expected_lines):
+            fi = FileInput(files=t1, mode=mode, openhook=hook_encoded('utf-7'))
+            lines = list(fi)
+            fi.close()
+            self.assertEqual(lines, expected_lines)
+
+        check('r', [u'A\n', u'B\r\n', u'C\rD\u20ac'])
+        check('rU', [u'A\n', u'B\n', u'C\n', u'D\u20ac'])
+        check('U', [u'A\n', u'B\n', u'C\n', u'D\u20ac'])
+        check('rb', [u'A\n', u'B\r\n', u'C\rD\u20ac'])
+
 def test_main():
-    run_unittest(BufferSizesTests, FileInputTests)
+    run_unittest(BufferSizesTests, FileInputTests, Test_hook_encoded)
 
 if __name__ == "__main__":
     test_main()

F
======================================================================
FAIL: test_modes (test.test_fileinput.Test_hook_encoded)
----------------------------------------------------------------------
Traceback (most recent call last):
  File "P:\ath\to\2.7\cpython\lib\test\test_fileinput.py", line 235, in test_modes
    check('r', [u'A\n', u'B\r\n', u'C\rD\u20ac'])
  File "P:\ath\to\2.7\cpython\lib\test\test_fileinput.py", line 233, in check
    self.assertEqual(lines, expected_lines)
AssertionError: Lists differ: [u'A\n', u'B\r\n', u'C\r', u'D... != [u'A\n', u'B\r\n', u'C\rD\u20a...

First differing element 2:
C

C
D\u20ac

First list contains 1 additional elements.
First extra element 3:
D\u20ac

- [u'A\n', u'B\r\n', u'C\r', u'D\u20ac']
?                         -----

+ [u'A\n', u'B\r\n', u'C\rD\u20ac']

----------------------------------------------------------------------
Ran 1 test in 0.010s

FAILED (failures=1)
[41980 refs]

First test commented out: 
diff -r 0926adcc335c Lib/test/test_fileinput.py
--- a/Lib/test/test_fileinput.py	Mon Feb 24 15:36:45 2014 -0500
+++ b/Lib/test/test_fileinput.py	Wed Feb 26 09:25:27 2014 -0600
@@ -218,8 +218,27 @@
         finally:
             remove_tempfiles(t1)
 
+class Test_hook_encoded(unittest.TestCase):
+    """Unit tests for fileinput.hook_encoded()"""
+
+    def test_modes(self):
+        # Unlikely UTF-7 is locale encoding
+        t1 = writeTmp(1, ["A\nB\r\nC\rD+IKw-"], mode="wb")
+        self.addCleanup(safe_unlink, t1)
+
+        def check(mode, expected_lines):
+            fi = FileInput(files=t1, mode=mode, openhook=hook_encoded('utf-7'))
+            lines = list(fi)
+            fi.close()
+            self.assertEqual(lines, expected_lines)
+
+        #check('r', [u'A\n', u'B\r\n', u'C\rD\u20ac'])
+        check('rU', [u'A\n', u'B\n', u'C\n', u'D\u20ac'])
+        check('U', [u'A\n', u'B\n', u'C\n', u'D\u20ac'])
+        check('rb', [u'A\n', u'B\r\n', u'C\rD\u20ac'])
+
 def test_main():
-    run_unittest(BufferSizesTests, FileInputTests)
+    run_unittest(BufferSizesTests, FileInputTests, Test_hook_encoded)
 
 if __name__ == "__main__":
     test_main()

F
======================================================================
FAIL: test_modes (test.test_fileinput.Test_hook_encoded)
----------------------------------------------------------------------
Traceback (most recent call last):
  File "P:\ath\to\2.7\cpython\lib\test\test_fileinput.py", line 236, in test_modes
    check('rU', [u'A\n', u'B\n', u'C\n', u'D\u20ac'])
  File "P:\ath\to\2.7\cpython\lib\test\test_fileinput.py", line 233, in check
    self.assertEqual(lines, expected_lines)
AssertionError: Lists differ: [u'A\n', u'B\r\n', u'C\r', u'D... != [u'A\n', u'B\n', u'C\n', u'D\u...

First differing element 1:
B


B


- [u'A\n', u'B\r\n', u'C\r', u'D\u20ac']
?              ^    --------

+ [u'A\n', u'B\n', u'C\n', u'D\u20ac']
?              ^^^^^^^


----------------------------------------------------------------------
Ran 1 test in 0.010s

FAILED (failures=1)
[41815 refs]

First two tests commented out: 
diff -r 0926adcc335c Lib/test/test_fileinput.py
--- a/Lib/test/test_fileinput.py	Mon Feb 24 15:36:45 2014 -0500
+++ b/Lib/test/test_fileinput.py	Wed Feb 26 09:25:47 2014 -0600
@@ -218,8 +218,27 @@
         finally:
             remove_tempfiles(t1)
 
+class Test_hook_encoded(unittest.TestCase):
+    """Unit tests for fileinput.hook_encoded()"""
+
+    def test_modes(self):
+        # Unlikely UTF-7 is locale encoding
+        t1 = writeTmp(1, ["A\nB\r\nC\rD+IKw-"], mode="wb")
+        self.addCleanup(safe_unlink, t1)
+
+        def check(mode, expected_lines):
+            fi = FileInput(files=t1, mode=mode, openhook=hook_encoded('utf-7'))
+            lines = list(fi)
+            fi.close()
+            self.assertEqual(lines, expected_lines)
+
+        #check('r', [u'A\n', u'B\r\n', u'C\rD\u20ac'])
+        #check('rU', [u'A\n', u'B\n', u'C\n', u'D\u20ac'])
+        check('U', [u'A\n', u'B\n', u'C\n', u'D\u20ac'])
+        check('rb', [u'A\n', u'B\r\n', u'C\rD\u20ac'])
+
 def test_main():
-    run_unittest(BufferSizesTests, FileInputTests)
+    run_unittest(BufferSizesTests, FileInputTests, Test_hook_encoded)
 
 if __name__ == "__main__":
     test_main()

F
======================================================================
FAIL: test_modes (test.test_fileinput.Test_hook_encoded)
----------------------------------------------------------------------
Traceback (most recent call last):
  File "P:\ath\to\2.7\cpython\lib\test\test_fileinput.py", line 237, in test_modes
    check('U', [u'A\n', u'B\n', u'C\n', u'D\u20ac'])
  File "P:\ath\to\2.7\cpython\lib\test\test_fileinput.py", line 233, in check
    self.assertEqual(lines, expected_lines)
AssertionError: Lists differ: [u'A\n', u'B\r\n', u'C\r', u'D... != [u'A\n', u'B\n', u'C\n', u'D\u...

First differing element 1:
B


B


- [u'A\n', u'B\r\n', u'C\r', u'D\u20ac']
?              ^    --------

+ [u'A\n', u'B\n', u'C\n', u'D\u20ac']
?              ^^^^^^^


----------------------------------------------------------------------
Ran 1 test in 0.009s

FAILED (failures=1)
[41814 refs]

First three tests commented out: 
diff -r 0926adcc335c Lib/test/test_fileinput.py
--- a/Lib/test/test_fileinput.py	Mon Feb 24 15:36:45 2014 -0500
+++ b/Lib/test/test_fileinput.py	Wed Feb 26 09:25:58 2014 -0600
@@ -218,8 +218,27 @@
         finally:
             remove_tempfiles(t1)
 
+class Test_hook_encoded(unittest.TestCase):
+    """Unit tests for fileinput.hook_encoded()"""
+
+    def test_modes(self):
+        # Unlikely UTF-7 is locale encoding
+        t1 = writeTmp(1, ["A\nB\r\nC\rD+IKw-"], mode="wb")
+        self.addCleanup(safe_unlink, t1)
+
+        def check(mode, expected_lines):
+            fi = FileInput(files=t1, mode=mode, openhook=hook_encoded('utf-7'))
+            lines = list(fi)
+            fi.close()
+            self.assertEqual(lines, expected_lines)
+
+        #check('r', [u'A\n', u'B\r\n', u'C\rD\u20ac'])
+        #check('rU', [u'A\n', u'B\n', u'C\n', u'D\u20ac'])
+        #check('U', [u'A\n', u'B\n', u'C\n', u'D\u20ac'])
+        check('rb', [u'A\n', u'B\r\n', u'C\rD\u20ac'])
+
 def test_main():
-    run_unittest(BufferSizesTests, FileInputTests)
+    run_unittest(BufferSizesTests, FileInputTests, Test_hook_encoded)
 
 if __name__ == "__main__":
     test_main()

F
======================================================================
FAIL: test_modes (test.test_fileinput.Test_hook_encoded)
----------------------------------------------------------------------
Traceback (most recent call last):
  File "P:\ath\to\2.7\cpython\lib\test\test_fileinput.py", line 238, in test_modes
    check('rb', [u'A\n', u'B\r\n', u'C\rD\u20ac'])
  File "P:\ath\to\2.7\cpython\lib\test\test_fileinput.py", line 233, in check
    self.assertEqual(lines, expected_lines)
AssertionError: Lists differ: [u'A\n', u'B\r\n', u'C\r', u'D... != [u'A\n', u'B\r\n', u'C\rD\u20a...

First differing element 2:
C

C
D\u20ac

First list contains 1 additional elements.
First extra element 3:
D\u20ac

- [u'A\n', u'B\r\n', u'C\r', u'D\u20ac']
?                         -----

+ [u'A\n', u'B\r\n', u'C\rD\u20ac']

----------------------------------------------------------------------
Ran 1 test in 0.010s

FAILED (failures=1)
[41974 refs]