IMO the best behavior would be to always recurse and have an option to exclude specific submodules.  When the Django devs want to package their code, they think about a Python package named django, docs and scripts, not about django, django.views, django.http, etc.  I proposed glob syntax or a new key to be conservative, but now I’ll add a third proposal:

packages = foo
packages-exclude = foo.spam

For a package foo with subpackages ham and spam, this would get foo and foo.ham.
Note that this was discussed on the fellowship ML two years ago but I don’t have the time to re-read the thread now.

(Why is it not named exclude-packages? 1) you can exclude single-file modules too with this option 2) it makes it clear that it’s a “sub-option” of packages)

About extension modules sources: good idea, but it should be its own feature request.