I am seeing this issue and noticed that if I disable DIGEST-MD5 as an available SASL Mechanism within openfire (Server → Server Settings → SASL Mechanisms), then xmpppy is able to connect.
My guess is that the client implementation of DIGEST-MD5 conflicts with Openfire, as per [OF-477] SASL server in OF creates digest-uri based on xmpp.fqdn but it sends xmpp.domain to the client - Ignite Realtime Jira