The encoding your terminal is using doesn't support that character:
>>> '\xdf'.encode('cp866')
Traceback (most recent call last):
File "<stdin>", line 1, in <module>
File "/opt/local/Library/Frameworks/Python.framework/Versions/3.3/lib/python3.3/encodings/cp866.py", line 12, in encode
return codecs.charmap_encode(input,errors,encoding_map)
UnicodeEncodeError: 'charmap' codec can't encode character '\xdf' in position 0: character maps to <undefined>
Python is handling it just fine, it's your output encoding that cannot handle it.
You can try using chcp 65001 in the Windows console to switch your codepage; chcp is the windows command line command to change code pages.
Mine, on OS X (using UTF-8) can handle it just fine:
>>> print('\xdf')
ß
Hope this helps!