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I can get Apache/mod_python to return this information in real-time when the HTTP request is made, one update at a time, before returning.
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That's your problem right there. Your mod_python page should only return a single value. You send an http request, and the mod_python script should only return the current status.
To get the effect of a progress/status bar, you need to put your loop in the javascript AJAX code. Have the javascript loop the AJAX request until an end-of-loop value is returned.
Doing AJAX by hand is a major PITA. You should take a look at one of the javascript frameworks like jquery or mootools. I haven't used mootools, but jquery makes AJAX a heck of a lot easier than trying to write it by hand and it also handles browser compatibility.
Have a look:
http://docs.jquery.com/Ajax