Here's my problem:

If the guessed letter appears more than once in the word, only the first one is changed (from an asterisk).

answer = "hippo"
#using hippo as a test word.  Later will add a list of words and use random.
show_word = list(len(answer) * "*")
#the secret word or 'answer' is first represented by a string of ***'s.
turn = 1
guesses = ""
while turn < 10:
    guess = raw_input("guess a letter")
    if guess in answer:
        show_word[answer.index(guess)] = guess
#if the guess is correct the corresponding asterisk is changed to the guessed letter
        print ''.join(show_word)
        print "no", guess
    guesses += guess
    turn += 1
    print guesses


index() will return the first match it find, not all matches.

Either use a loop, or the built in replace() method