#!/usr/bin/python
#*- coding: utf-8 -*-
 
from lxml import etree
 
myGroupName = 'Чаты'
group = etree.Element('group', name=myGroupName.decode('utf-8'))
s = etree.tostring(group, pretty_print=True)
 
print s

myGroupName = u'Чаты'

import HTMLParser
pars = HTMLParser.HTMLParser() 
print pars.unescape(s)

>>> from lxml import etree
>>> 
>>> myGroupName = u'Чаты'
>>> group = etree.Element('group', name=myGroupName)
>>> s = etree.tostring(group, encoding='utf-8', pretty_print=True)
>>>  
... print s
<group name="Чаты"/>
>>>