On POSIX systems, the PATH environment variable is always used to
look up directory-less executable names passed as the first argument to Popen(...), but on Windows, PATH is only considered when shell=True is also passed.  

Actually I think it may be slightly weirder than that when
shell=False, because the following holds for me:

C:\>rem ##### Prepare minimal PATH #####
C:\>set "PATH=C:\Python26\Scripts;C:\Python26;C:\WINDOWS\system32;C:\WINDOWS;C:\WINDOWS\System32\Wbem"

C:\>rem ##### Prepare a minimal, clean environment #####
C:\>virtualenv --no-site-packages e:\zzz
New python executable in e:\zzz\Scripts\python.exe
Installing setuptools................done.

C:\>rem ##### Show that shell=True makes the difference in determining whether PATH is respected #####
C:\>python
Python 2.6.5 (r265:79096, Mar 19 2010, 18:02:59) [MSC v.1500 64 bit (AMD64)] on win32
Type "help", "copyright", "credits" or "license" for more information.
>>> import subprocess
>>> subprocess.Popen(['python', '-c', 'import sys; print sys.executable'])
<subprocess.Popen object at 0x0000000001DBE080>
>>> C:\Python26\python.exe

>>> subprocess.Popen(['python', '-c', 'import sys; print sys.executable'], env={'PATH':r'e:\zzz\Scripts'})
<subprocess.Popen object at 0x0000000001F05A90>
>>> C:\Python26\python.exe

>>> subprocess.Popen(['python', '-c', 'import sys; print sys.executable'], env={'PATH':r'e:\zzz\Scripts'}, shell=True)
<subprocess.Popen object at 0x0000000001F05B00>
>>> e:\zzz\Scripts\python.exe

That is, it looks like the environment at the time Python is invoked is what counts unless I pass shell=True.  I don't even seem to be able to override this behavior by changing os.environ: you can clear() it and pass env={} and subprocess.Popen(['python']) still succeeds.

This is a very important problem for portable code and one that took me hours to suss out.  I think:

a) the current behavior needs to be documented
b) it needs to be fixed if possible
c) otherwise, shell=True should be the default