see http://docs.python.org/library/sys.html#sys.path

"As initialized upon program startup, the first item of this list, path[0], is the directory containing the script that was used to invoke the Python interpreter. If the script directory is not available (e.g. if the interpreter is invoked interactively or if the script is read from standard input), path[0] is the empty string, which directs Python to search modules in the current directory first."

So the empty string here is the current working directory (at the time the script is run?).