Your question implies that you don't need Unicode. Try the following code snippet; if it works for you, you're done:
Python 2.5.2 (r252:60911, Aug 22 2008, 02:34:17)
[GCC 4.3.1] on linux2
Type "help", "copyright", "credits" or "license" for more information.
>>> import locale
>>> locale.setlocale(locale.LC_COLLATE, "en_US")
'en_US'
>>> sorted("ABCabc", key=locale.strxfrm)
['a', 'A', 'b', 'B', 'c', 'C']
>>> sorted("ABCabc", cmp=locale.strcoll)
['a', 'A', 'b', 'B', 'c', 'C']
Clarification: in case it is not obvious at first sight, locale.strcoll seems to be the function you need, avoiding the str.lower or locale.strxfrm "duplicate" strings.
