First, update TextBlob to the latest version (0.6.0 as of this writing), as there have some unicode fixes in recent updates. This can be done with
$ pip install -U textblob
Then, use a unicode literal, like so:
from text.blob import TextBlob
b = TextBlob( u'But Húrin did not answer, and they sat beside the stone, and did not speak again' )
noun_phrases = b.noun_phrases
print noun_phrases
# WordList([u'h\xfarin'])
print noun_phrases[0]
# húrin
This is verified on Python 2.7.5 with TextBlob 0.6.0, but it should work with Python 2.6.8 as well.