"Leaving IDNA ASCII-compatible encodings in ASCII form" is just preserving the existing behaviour (not doing IDNA decoding).  See

http://tools.ietf.org/html/rfc3490

and the docs for codecs -> encodings.idna ("xn--lzg" in the example is the ASCII-compatible encoding of "€", so if you look up that IP address, "xn--lzg" is returned with or without the patch).

I'll look into your other comments.  In the meantime, I've got one more patch, as the decoding of the nodename field in os.uname() also needs to be changed to match the other hostname-returning functions.  This patch changes it to ASCII/surrogateescape, with the usual PEP 383 decoding for the other fields.