When trying to build distribute on the latest python-3.2rc I get the following traceback in the unittests (two others that are similar as well):

======================================================================
ERROR: test_develop (setuptools.tests.test_develop.TestDevelopTest)
----------------------------------------------------------------------
Traceback (most recent call last):
  File "/usr/lib/python3.2/distutils/util.py", line 283, in subst_vars
    return re.sub(r'\$([a-zA-Z_][a-zA-Z_0-9]*)', _subst, s)
  File "/usr/lib/python3.2/re.py", line 167, in sub
    return _compile(pattern, flags).sub(repl, string, count)
  File "/usr/lib/python3.2/distutils/util.py", line 280, in _subst
    return os.environ[var_name]
  File "/usr/lib/python3.2/os.py", line 450, in __getitem__
    value = self._data[self.encodekey(key)]
KeyError: b'abiflags'
During handling of the above exception, another exception occurred:
Traceback (most recent call last):
  File "build/src/setuptools/tests/test_develop.py", line 52, in test_develop
    cmd.ensure_finalized()
  File "/usr/lib/python3.2/distutils/cmd.py", line 109, in ensure_finalized
    self.finalize_options()
  File "build/src/setuptools/command/develop.py", line 51, in finalize_options
    easy_install.finalize_options(self)
  File "build/src/setuptools/command/easy_install.py", line 225, in finalize_options
    self.expand_dirs()
  File "build/src/setuptools/command/easy_install.py", line 335, in expand_dirs
    'install_scripts', 'install_data',])
  File "build/src/setuptools/command/easy_install.py", line 323, in _expand_attrs
    val = subst_vars(val, self.config_vars)
  File "/usr/lib/python3.2/distutils/util.py", line 285, in subst_vars
    raise ValueError("invalid variable '$%s'" % var)
ValueError: invalid variable '$b'abiflags''

It seems that something in the addition of abiflags is causing distutils to search for abiflags in os.environ.  After talking with tarek on IRC we decided to open a bug here to see whether this is desirable change in behaviour within the stdlib.

The revision introducing abiflags is here: http://svn.python.org/view?view=rev&revision=85697