Find  in  addons/auth_signup/res_users.py a string 

                fragment['login'] = partner.user_ids[0].login 

and replace it with
                fragment['login'] = partner.user_ids[0].login.encode('utf-8')

Once I got struck on the same error, When I was write a data into the excel file using xlrd python module. you can ignore the string encoded in ascii example:

str = u'\xa56'
print str.encode('ascii')  # If this fails then use next line to ignore
str.encode('ascii','ignore')

You will get the empty string .

But If you still want to use the string value then django smart_str will work.

in Django1.5 smart_text is used. Copy this .py code and put this in your module link text

Then :

from django.utils.encoding import smart_text, smart_unicode,smart_str

smart_text(str)
smart_str(str)
smart_unicode(str)

If you did not able to import the above module then download django zip code link text

get into its directory install django using :

python setup.py install

then open python in shell then use

from django.utils.encoding import smart_text, smart_unicode,smart_str