uff -- that is a nasty one ;) Our piece of code is

repo.config_writer().set_value("annex", "backends", backend)

where backend is a str (python3). And it seems to set the value properly and actual wipe out of the file doesn't happen until this writer (I guess) gets GCed -- I force that in our test now with gc.collect() and it results then in .git/config of that repo being wiped (0 byte size).
I have upgraded even to current master in that tox env, and the same result. Let me know if you need more details. python is 3.4.3, Debian amd64 sid/testing