>> Commenting out the forced "--non-interactive" in vc-svn-comment fixes this:
> 
> Could you explain how this works? Does it pop up a dialogue box or
> something? How does it communicate the results back to Emacs?

Well, svn keeps it all to itself.
It looks like the screenshot below (this is just an example; it could be asking for a keychain password).

> What happens if you are running with `emacs -nw'?

Exactly the same.
Again, it's svn that prompts, not Emacs.

> What happens if you vc-update from Emacs and there are conflicts, and
> svn tries to drop you into interactive conflict resolution
> (http://debbugs.gnu.org/4280)?

Well, first svn (again) prompts via GUI for access, and then I see (in Emacs):

Updating 'x':
Conflict discovered in '/Users/cabo/Documents/uni/lehre/isec12/ueb/x'.
Select: (p) postpone, (df) diff-full, (e) edit,
        (mc) mine-conflict, (tc) theirs-conflict,
        (s) show all options: svn: E070014: Can't read stdin: End of file found

If you want this to fail less, this should apparently have a --accept (and not a --non-interactive).

Grüße, Carsten