Thanks for the report.

“No directory information from files is used to determine the final location of the installed file; only the name of the file is used”

I understand this line to mean that only the basename of the file will be used in the target directory, IOW that ('config', ['cfg/data.cfg']) will create a file in config/data.cfg, not config/cfg/data.cfg.  I’m not 100% sure about my reading though, this line is confusing.

Paths starting with '..' are relative, even if they’re not under the top-level directory of the project (do the docs say they should be?), so the ability to give '../../spam/whatever' as data file looks okay.  However, it should not be installed to target_dir/../../spam, that’s definitely a bug (coming from os.path.join in cmd.Command.copy_file, I think).

If you want to write a test and fix, there are some guidelines at http://wiki.python.org/moin/Distutils/FixingBugs