Strange problems with encoding

[Sebastian Meyer]

Hi newsgroup,

i am trying to replace german special characters in strings like
    str = re.sub('ö', 'oe', str)

When i work with this, i always get the message
UniCode Error: ASCII decoding error : ordinal not in range(128)

Yes i  have googled, i searched the faq, manual and python library and
searched all known soruces of information. I played with the python
builtin function encode to enforce the rigth encoding, but the error 
stays the same. I ve read a lot about UniCode and internal conversion
about Strings done by python, but somehow i ve missed the clue.
Nope, python says Huuups... ordinal not in range(128), ;-(

Anyone of you having any idea?? Seems like i am too stupid to read
documentation carefully., perhaps i misunderstand something...

thanks for your help in advance

Sebastian