Put your socket code into a thread, or use select.select() for non-blocking socket-reads. Then post custom event-messages back to the main loop when a data-gram arrives from the server.

import pygame
import enum

class NetworkEvents( enum.IntEnum ):
    EVENT_HANGUP    = pygame.USEREVENT + 1
    EVENT_MESSAGE   = pygame.USEREVENT + 2

Your socket-reading code should handle partial-packets, hang-ups and delays too. I think your error above is caused by trying to unpack a partial (or somehow junk) packet. Commonly people use the pickle module to encapsulate this data, but to begin with, I would do pre-testing with simple string data. It's easier to debug. Then once the transmission code is all bedded-down and tested, change to binary - if necessary.

I like to use select() in my socket code no matter what. It gives fine-grained control over what's happening with the socket.

Here's a simple threaded socket-conversation handler. It really only supports socket-hangup and incoming message. But it could be easily extended to handle further message types.

import threading
import pygame
import random
import enum
import socket
import select
import time

class ConversationHandlerThread( threading.Thread ):
    """ A thread that handles a conversation with a single remote server.
        Accepts commands of 'close', 'red', 'green' or 'blue', and posts messages
        to the main PyGame thread for processing """
    def __init__( self, server_address, server_port ):
        threading.Thread.__init__(self)
        self.server_address = server_address
        self.server_port    = server_port
        self.server_socket  = None
        self.data_buffer    = ''
        self.daemon         = True # exit with parent
        self.done           = False

    def stop( self ):
        self.done = True

    def connect( self ):
        self.server_socket = socket.socket( socket.AF_INET, socket.SOCK_STREAM )
        while True:
            try:
                self.server_socket.connect( ( self.server_address, self.server_port ) )
                print( "Connected to %s:%d" % ( self.server_address, self.server_port ) )
                break;
            except:
                print( "Failed to connect %s:%d" % ( self.server_address, self.server_port ) )
                time.sleep( 12 )
                print( "Retrying..." )

    def run( self ):
        """ Connects to Server, then Loops until the server hangs-up """
        self.connect()

        # Now we're connected, start reading commands
        read_events_on   = [ self.server_socket ]
        while ( not self.done ):
            # Wait for incoming data, or errors, or 0.3 seconds
            (read_list, write_list, except_list) = select.select( read_events_on, [], [], 0.5 )

            if ( len( read_list ) > 0 ):
                # New data arrived, read it
                incoming = self.server_socket.recv( 8192 )
                if ( len(incoming) == 0):
                    # Socket has closed
                    new_event = pygame.event.Event( NetworkEvents.EVENT_HANGUP, { "address" : self.server_address } )
                    pygame.event.post( new_event )
                    self.server_socket.close()
                    self.done = True
                else:
                    # Data has arrived
                    try:
                        new_str = incoming.decode('utf-8')
                        self.data_buffer += new_str
                    except:
                        pass # don't understand buffer

                    # Parse incoming message (trivial parser, not high quality) 
                    # commands are '\n' separated
                    if (self.data_buffer.find('\n') != -1 ):
                        for line in self.data_buffer.split('\n'):
                            line = line.strip()
                            # client disconnect command
                            if ( line == 'close' ):
                                new_event = pygame.event.Event( NetworkEvents.EVENT_HANGUP, { "address" : self.server_address } )
                                pygame.event.post( new_event )
                                self.server_socket.close()
                                self.done = True

                            # only make events for valid commands
                            elif ( line in ( 'red', 'green', 'blue' ) ):
                                new_event = pygame.event.Event( NetworkEvents.EVENT_MESSAGE, { "address" : self.server_address, "message" : line  } )
                                pygame.event.post( new_event )
                        self.data_buffer = ''  # all used-up

The beauty of putting all this complexity into a thread, is that once it's started, you can forget about it.

# Start the network-handler thread
thread1 = ConversationHandlerThread( '127.0.0.1', 5555 )
thread1.start()

In your main loop, process the events like any others:

for event in pygame.event.get():
    if ( event.type == pygame.QUIT ):
        done = True

    elif ( event.type == NetworkEvents.EVENT_HANGUP ):
        print(" CLIENT DISCONNECTED %s " % ( str(event.address) ) )

    elif ( event.type == NetworkEvents.EVENT_MESSAGE ):
        print(" CLIENT MESSAGE FROM %s - %s " % ( str(event.address), event.message ) )
        if ( event.message == 'red' ):
            new_sprite = AlienSprite( RED )
            SPRITES.add( new_sprite )