A few comments:

(1) The patch appears to assume that a Unicode string created with PyUnicode_New(size, 127) will have 'kind' PyUnicode_1BYTE_KIND.  While this might be true in the current implementation, I don't know whether this is guaranteed in general.  Martin, any comments on this?

(2) The patch doesn't compile with '--with-pydebug':  there's a reference to the (now) undefined variable 'buffer' in one of the asserts.

(3) The overflow check looks as though it needs to be reworked.