[XML-SIG] 'utf8' codec can't decode byte 0xc3 - bug in xmlproc?

[Anders]

Im having a hard time debugging this error:

<somefile>:<row>:<char>: character set conversion problem: 'utf8' codec can't decode byte 0xc3 in position 65535: unexpected end of data

The file Im trying to parse with xmlproc contains no illegal utf-8 byte 
sequences and this error does not occur when I switch to pyexpat. This 
is a hexdump of the row its complaining about:
00020030  64 65 73 20 6c c3 a8 76  72 65 73 20 42 6f 72 64  |des l..vres 
Bord|
Its nothing wrong with this bytesequence what I can see.

Has anyone else experienced this problem and found a solution, all help 
appreciated.

/Anders