This is a crazy and unexpected behavior.  (Moreover, the fact that Python has dynamic scope *only if you forget to initialize a variable* is even more crazy and unexpected.)  To provide unsurprising behavior (i.e. behavior compatible with that of a list comprehension) the generator above should "unwrap" (i.e. reduce) to:

def g1(x):
    for y in 'c':
        yield x+y
l = []
for x in 'ab':
    l.append(g1(x))
print l
print map(list, l)

i.e. the variables referenced by, but not initialized by, the innermost generator should add extra parameters to the generated generator function.