Using Python 2.6.3 on Windows XP, distutils fails building an extension
module when mingw32 is specified as the compiler. Distutils fails with
the error message "Unable to find vcvarsall.bat".

Looking back in the subversion history for the distutils build_ext
command
(http://svn.python.org/view/python/tags/r263/Lib/distutils/command/build_ext.py?view=log)
I've found that line 306 has been changed in revision 72594 to read:
    self.compiler = new_compiler(compiler=None,

reverting back to revision 72586, so the code reads:
    self.compiler = new_compiler(compiler=self.compiler,

seems to fix the problem.