The operation of the DELETE
character (ASCII 7F) depends on the terminal; because it is being printed before the next character, it often does nothing at all. Historically, the meaning of the 7F unicode codepoint has been unclear.
The BACKSPACE
code, 08, operates on the previous character. As the terminal has already printed that, works correctly:
>>> print u"hi \u0008there"
hithere
Perhaps you can use that instead?