easy install / setuptools does not work in 2.6 based distro

[p.zivkovic]

When using Portable Python 1.1 based on Python 2.5.4, I can use the
following:

App\python.exe App\Scripts\easy_install-script.py foo

The version based on Python 2.6.1 uses different locations, namely
App\easy_install.py (and also App\setuptools\command\easy_install.py).
Something doesn't seem quite right though - easy_install can't find
setuptools*.
Yet I can import it manually from the same working directory:

  cd App 
    python.exe 
    >>> import setuptools # works

Am I perhaps Doing It Completely Wrong?
-- F.
* command and traceback:

    > App\python.exe App\easy_install.py foo 
    Traceback (most recent call last): 
      File "App\easy_install.py", line 4, in <module> 
        from setuptools.command.easy_install import main 
      File "App\setuptools\command\easy_install.py", line 21, in 
<module> 
        from setuptools.package_index import PackageIndex, 
parse_bdist_wininst 
      File "App\setuptools\package_index.py", line 
    145, in <module> 
        urllib2.__version__, require('setuptools')[0].version 
      File "App\pkg_resources.py", line 626, in require 
        needed = self.resolve(parse_requirements(requirements)) 
      File "App\pkg_resources.py", line 524, in res 
    olve 
        raise DistributionNotFound(req)  # XXX put more info here 
    pkg_resources.DistributionNotFound: setuptools

How to solve:
 http://groups.google.com/group/portablepython/browse_thread/thread/5cc217f34b895541