Ah, I wondered if it was something like that (encoding=>UnicodeError).  It's not really a *unicode* error, it's a syntax error in the domain name construction (ie: it is invalid whether or not unicode is involved, it just isn't caught in 2.x for non-unicode domain names), but oh well.

As for 'label' vs 'domain subpart', I've never heard anyone refer to the parts of a domain as 'labels' even in technical conversations, but as I think about it further I haven't heard them referred to at all.  So I withdraw that suggestion :)

Putting the label in the error message would be a nice enhancement, but definitely low priority.