What happens when you run the script with wide-characters explicitly turned off, i.e. in an xterm launched with xterm -u8 +wc? For me, wide character xterm windows show all output. It could be that you aren't seeing the same results because your system is configured by default to have wide characters turned on and you need to explicitly turn it off to get the results I'm getting. I'm only seeing STDOUT and STDERR disappear when wide characters are turned off (see sample output in OP).
It could be a bug, but I'm beginning to think that it may in fact be a "feature" left over from the pre-unicode days of the computing world. xterm, at least in in version 235, seems to think certain byte sequences are escape sequences meant to control the terminal. See my latest reply to kennethk.