I second Serhiy here. Wrapping the LZMAFile in a BufferedReader is the simple solution to the performance problem:

 ./python -m timeit -s "import lzma, io" "f=lzma.LZMAFile('words.xz', 'r')" "for line in f: pass"
10 loops, best of 3: 148 msec per loop

$ ./python -m timeit -s "import lzma, io" "f=io.BufferedReader(lzma.LZMAFile('words.xz', 'r'))" "for line in f: pass"
10 loops, best of 3: 44.3 msec per loop

$ time xzcat words.xz | wc -l
99156

real	0m0.021s
user	0m0.016s
sys	0m0.004s


Perhaps the top-level lzma.open() should do the wrapping for you, though.
Interestingly, opening in text (i.e. unicode) mode is almost as fast as with a BufferedReader:

$ ./python -m timeit -s "import lzma, io" "f=lzma.open('words.xz', 'rt')" "for line in f: pass"
10 loops, best of 3: 51.1 msec per loop