rdmurray@hey:~/python/p32>cat bad.py

    This line is just ascii
    A second line for good measure.
    This comment contains undecodable stuff: "�" or "\\xe9" in "pass�"" cannot be decoded.

The last line above is in latin-1, with an é inside those quotes.

    rdmurray@hey:~/python/p32>cat bug.py      
    import sys
    with open('./bad.py', buffering=int(sys.argv[1])) as f:
        for line in f:
            print(line, end='')
    rdmurray@hey:~/python/p32>python3 bug.py -1
    Traceback (most recent call last):
      File "bug.py", line 3, in <module>
        for line in f:
      File "/usr/lib/python3.2/codecs.py", line 300, in decode
        (result, consumed) = self._buffer_decode(data, self.errors, final)
    UnicodeDecodeError: 'utf8' codec can't decode byte 0xe9 in position 99: invalid continuation byte
    rdmurray@hey:~/python/p32>python3 bug.py 1 
    Traceback (most recent call last):
      File "bug.py", line 3, in <module>
        for line in f:
      File "/usr/lib/python3.2/codecs.py", line 300, in decode
        (result, consumed) = self._buffer_decode(data, self.errors, final)
    UnicodeDecodeError: 'utf8' codec can't decode byte 0xe9 in position 99:
    invalid continuation byte
    rdmurray@hey:~/python/p32>python3 bug.py 2
    This line is just ascii
    A second line for good measure.
    Traceback (most recent call last):
      File "bug.py", line 3, in <module>
        for line in f:
      File "/usr/lib/python3.2/codecs.py", line 300, in decode
        (result, consumed) = self._buffer_decode(data, self.errors, final)
    UnicodeDecodeError: 'utf8' codec can't decode byte 0xe9 in position 0: invalid
    continuation byte

So, line buffering does not appear to buffer line by line.

I ran into this problem because I had a much larger file that I thought
was in utf-8.  When I got the encoding error, I was annoyed that the
error message didn't really tell me which line the error was on, but I
figured, OK, I'll just set line buffering and then I'll be able to tell.
But that didn't work.  Fortunately using '2' did work....but at a minimum
the docs need to be updated to indicate when line buffering really is
line buffering and when it isn't.

Without looking at the code, it seems that

http://docs.python.org/release/3.1.5/library/io.html?highlight=io#io.TextIOWrapper

gives the answer

"If line_buffering is True, flush() is implied when a call to write contains a newline character."

So, "line buffering" may have a meaning only for writing. I don't think there is a reasonable way to implement it for reading.

That makes sense.  I'll add a mention of this to the 'open' docs that discuss the buffering parameter.

Indeed, line buffering on the read size would very slow (since you would have to read and decode one byte at a time from the raw stream to make sure you don't overshoot the line boundaries).