The doc has been fixed; using lineterminator in reader has not been and is not likely to be implemented (unless someone wants to come forward with a patch). Processing files that use \r line endings does work; as indicated you use universal newline mode for the input file.  In Py3k you can wrap a BytesIO object in a TextIOWrapper to get universal newline parsing.

So, I'm closing this as wont fix, as suggested.  If someone does want to implement lineterminator for reader, they can open a new feature request issue.