This may be a little tricky to recreate but here it is:

q = u'абвгде'
q.isalpha()
True

foo = u'ч'
foo.isalpha()
False

So the Russian character u'ч' and u'ё' as well as a bunch of others is
not recognized by isalpha as a alphabetic character, which it is a
matter of fact.
This applies to both capital and regular versions of the letters.

http://en.wikipedia.org/wiki/%D0%81
http://en.wikipedia.org/wiki/Che_(Cyrillic)

Using: Python 2.5 (r25:51908, Sep 19 2006, 09:52:17) [MSC v.1310 32 bit
(Intel)] on win32

Are you sure that you've used the right source code encoding for writing
these characters ?

Note that the Unicode .isalpha() method relies entirely on what the
Unicode database provides as code point information. If a character is
marked as not being alphanumeric (ie. is not in one of the categories
'Ll', 'Lu', 'Lt', 'Lo' or 'Lm'), it will return False.

FWIW: I get the following in Python 2.5:

>>> print u'\u0401'
Ё
>>> print u'\u0451'
ё
>>> print u'\u0401'.isalpha()
True
>>> print u'\u0451'.isalpha()
True

... and for the other character:

>>> print u'\u0427'
Ч
>>> print u'\u0447'
ч
>>> print u'\u0427'.isalpha()
True
>>> print u'\u0447'.isalpha()
True

Looks fine.

Results on Linux:

With Python 2.7 trunk:
>>> print(', '.join('%s:%s' % (c, c.isalpha()) for c in u'абвгдеч'))
а:True, б:True, в:True, г:True, д:True, е:True, ч:True

With Python 2.5.1:
>>> print(', '.join('%s:%s' % (c, c.isalpha()) for c in u'абвгдеч'))
а:True, б:True, в:True, г:True, д:True, е:True, ч:True

With Python 3.0 trunk:
>>> print(', '.join('%s:%s' % (c, c.isalpha()) for c in 'абвгдеч'))
а:True, б:True, в:True, г:True, д:True, е:True, ч:True

Are you sure that you really typed the character "ч"? Can you retry 
using unichr(0x447).isalpha()?

Test with Python3:
>>> print(' - '.join((r"\u%04x" % x) for x in range(0x400, 0x4ff+1) if 
not chr(x).isalpha()))
\u0482 - \u0483 - \u0484 - \u0485 - \u0486 - \u0487 - \u0488 - \u0489

Which means that Python thinks that all unicode character in range 
U+0400..U+04ff are letters except the range U+0482..U+0489 (thousands 
sign ҂ to million sign ҉).

I'll investigate it in further shortly, but for now replicating the test.
print u'\u0451'
¸
print u'\u0427'
×

Something must be going on here. Running Win XP.

$ python
Python 2.5.1 (r251:54863, Jul 31 2008, 23:17:40)
>>> print u'\u0451'
ё
>>> print u'\u0427'
Ч

@ZooKeeper: Try Python 2.6, I guess that your bug is already fixed.