The attempt to install setuptools indicates that zlib may actually be required it seems.
I download setuptools-0.6c11-py2.7.egg from 
http://pypi.python.org/pypi/setuptools
and, as instructed at http://pypi.python.org/pypi/setuptools#id4
and run  `sh setuptools-0.6c11-py2.7.egg`
however get the following exception:
Traceback (most recent call last):
  File "<string>", line 1, in <module>
zipimport.ZipImportError: can't decompress data; zlib not available
dlafarrell:/localhome/afarrell$ sh setuptools-0.6c11-py2.7.egg 
Traceback (most recent call last):
  File "<string>", line 1, in <module>
zipimport.ZipImportError: can't decompress data; zlib not available

Given that this is an import error, I infer that
this may just be a problem with the egg; no import may be needed.
If thats the case then the egg should change to reflect that.