$ tar xzf distutils_bug.tar.gz
$ cd distutils_bug
$ ./setup.py sdist

$ ./setup.py sdist
running sdist
running check
warning: sdist: manifest template 'MANIFEST.in' does not exist (using default file list)

not writing to manually maintained manifest file 'MANIFEST'
creating foobar-1.0
making hard links in foobar-1.0...
hard linking README -> foobar-1.0
hard linking setup.py -> foobar-1.0
creating dist
Creating tar archive
removing 'foobar-1.0' (and everything under it)

$ cat MANIFEST 
README
setup.py
my_special_file

Note, the MANIFEST should have been read and the resulting tar file should have had my_special_file in it. sdist complains about a missing MANIFEST.in template which it shouldn't, it should use the existing MANIFEST, it also emits a warning about not overwriting a manually maintained MANIFEST which it shouldn't. It should just use the existing MANIFEST.