gistfile1.py

First version:

def make_line_iter(iter):
    buf = ''
    last_pos = 0

    for p in iter:
        buf += p

        lb = buf.find('\n', last_pos)
        while lb != -1:
            yield buf[:lb + 1]
            buf = buf[lb + 1:]

            lb = buf.find('\n')

        last_pos = len(buf)

    if buf:
        yield buf

if __name__ == '__main__':
    print list(make_line_iter(['abc', 'def', 'g\nhi']))
    print list(make_line_iter(['a\r\n', 'b\r\n', 'test\n']))

Slightly optimized version, if one buffer contains more than one line break, will work faster:
def make_line_iter(iter):
    buf = ''
    last_pos = 0

    for p in iter:
        buf += p

        n = 0

        lb = buf.find('\n', last_pos)
        while lb != -1:
            yield buf[n:lb + 1]

            n = lb + 1

            lb = buf.find('\n', n)

        if n > 0:
            buf = buf[n:]

        last_pos = len(buf)

    if buf:
        yield buf

if __name__ == '__main__':
    print list(make_line_iter(['abc', 'def', 'g\nhi']))
    print list(make_line_iter(['a\r\n', 'b\r\n', 'test\n']))
    print list(make_line_iter(['a\r\nb\n', 'b\r\nc\nd\n', 'test\n']))

Outputs:
['abcdefg\n', 'hi']
['a\r\n', 'b\r\n', 'test\n']