(fixed description formatting)
The patch goes a bit too far. We should never be applying smart_unicode() to anything is a URL. If they aren't already in ASCII, it's a bug on the client code's side (they should be using things like iri_to_uri() at the appropriate moments).
I'm having a bit of trouble understanding the original report, because smart_unicode() does work on the string you posted and you don't include what's in the traceback leading up to the error.
If the patch fixes it for you, can you just drop in a comment saying so? I'll apply a version of this patch anyway, since it mostly fixes some places that have been overlooked (thanks for testing that, both of you), but I would like some confirmation that it is fixing the original report as well.