After a quick search this link provided me with the first clue as to why this trouble is arising.
It seems your terminal is enforcing an incompatible locale upon your pip installation.
To fix this simply edit ~/.bash_profile:
~: nano ~/.bash_profile
Then add these lines:
# Setting for the new UTF-8 terminal support in Lion
export LC_CTYPE=en_US.UTF-8
export LC_ALL=en_US.UTF-8
NOTE: if the file doesn't exist, simply create it.
Now close your terminal, open it again, and retry the installation.