--- BEGIN OF SESSION TRANSCRIPT ---
$ python
Python version: 2.2.2 (#2, Feb 5 2003, 10:40:08)
[GCC 3.2.1 (Mandrake Linux 9.1 3.2.1-5mdk)] on linux-i386
Type "help", "copyright", "credits" or "license" for
more information.
>>> <CTRL-D>
$ cat exit.py
exit(1)
$ python exit.py
Traceback (most recent call last):
  File "exit.py", line 1, in ?
    exit(1);
TypeError: 'str' object is not callable
$ cat exitstr.py
exit("Fatal error")
$ python exitstr.py
Traceback (most recent call last):
  File "exitstr.py", line 1, in ?
    exit("Fatal error");
TypeError: 'str' object is not callable
--- END OF SESSION TRANSCRIPT ---

The first "python ..." command shall output nothing and
return 1 as the result. The second "python ..." command
shall output "Fatal error" to stderr and return 1 as
the result. No exception shall be raised there.

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It appears that you want to use the os.exit() function.  If so, 
you must import it from os.  The builtin exit (which you're 
using) is indeed just a string, which displays a message to 
interactive users telling them the correct way to end an 
interpreter session.  This varies across platforms.  For 
example, here under Cygwin:

$ python
Python 2.2.2 (#1, Dec 31 2002, 12:24:34)
[GCC 3.2 20020927 (prerelease)] on cygwin
Type "help", "copyright", "credits" or "license" for more 
information.
>>> exit
'Use Ctrl-D (i.e. EOF) to exit.'
>>>

"'str' object is not callable" is a perfectly appropriate 
exception if you try to (as you are trying to do) *call* a 
string with an argument.

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Oops!  Everywhere I wrote "os" read "sys" instead.  The 
sys.exit() function does what you want here.  There is no exit 
function in the os module (although there is a lower-level 
os._exit() function).

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Thanks. Now I looked at the example I was looking in my book
before and I did realized that they used unobtrusive "from
sys import exit" line at the *bottom* of the example script.
When you are working with compiled languages such as C for
so long time, the way you reads programs will be affected so
that you will get *really* confused if you see such a piece
of example code. So when I looked at the code and saw
"exit()" call, I thought that the exit() is a builtin
function (it was very long example and the exit() call was
on different page as the "from sys import exit" line, so I
didn't notice the import at first look) and when I got that
exception, I began to think about a bug being in Python
(after I really carefully compared to the example I was
looking on ;) ).

P.S. I'm closing this "bug" when I realized that there is no
such a bug in Python.

P.SS. I suggest you to not define the builtin "exit" when
you are not in the interactive mode (i.e. running a script)
to avoid further such confusions.