I found an easy to solve bug in distutils, which is causing problems with compiling Cython code on Windows. I have reproduced this on Python 2.6 and Python 3.2 (32 bit).

The problem occurs with the native msvc compiler. Using gcc (MinGW) works fine.

The problem is that the command to link the libraries does not put double quotes around paths that have spaces in them. Unfortunately, the path where I have Python installed has spaces in it ("c:/program files/python26"). Small example of part of a link command: 

/LIBPATH:C:\Program Files (x86)\python32\libs. 

Note that the include_dirs DO have double quotes around them.

The problem is easily solved (I confirmed this) by a small change in msvc9compiler.py and msvccompiler.py (see also the patch):

def library_dir_option(self, dir):  # OLD VERSION
     return "/LIBPATH:" + dir

def library_dir_option(self, dir): # FIXED VERSION
    if ' ' in dir and not dir.startswith('"'):
        dir = '"%s"' % dir
    return "/LIBPATH:" + dir

I tried to see if it would be nicer to apply a change elsewhere, e.g. where library_dir_option() is called. However, it is called nowhere from within the distutils package. In my case I suspect numpy.distutils or a part of Cython calls it. Anyway, in my opinion you should be able to pass this function a dirname that has a space in it, and get the right (partial) command. For the record, this change is quite safe because it checks whether quotes are already present. 


===== Below follows a minimal Cython example and traceback =====

===== test_.pyx
def foo():
print('hello')


===== setup.py
import os, sys
from Cython.Distutils import build_ext
from distutils.core import setup
from distutils.extension import Extension
from numpy.distutils.misc_util import get_numpy_include_dirs

# Ugly hack so I can run setup.py in my IDE
sys.argv = ['setup.py', 'build_ext', '--inplace']

# Init include dirs
include_dirs = ['.']
include_dirs.extend(get_numpy_include_dirs())

# Creat Extensions
ext_modules = [
     Extension('test_', ['test_.pyx'],
        include_dirs=include_dirs,
        ),
     ]

# Compile
setup(
    cmdclass = {'build_ext': build_ext},
    ext_modules = ext_modules,
    )

print('Successfully compiled cython file: test_')


===== output when running setup.py
running build_ext
No module named msvccompiler in numpy.distutils; trying from distutils
cythoning test_.pyx to test_.c
building 'test_' extension
C:\Program Files (x86)\Microsoft Visual Studio 9.0\VC\BIN\cl.exe /c /nologo /Ox /MD /W3 /GS- /DNDEBUG -I. -I"C:\Program Files (x86)\python32\lib\site-packages\numpy\core\include" -I"C:\Program Files (x86)\python32\include" -I"C:\Program Files (x86)\python32\PC" /Tctest_.c /Fobuild\temp.win32-3.2\Release\test_.obj
Found executable C:\Program Files (x86)\Microsoft Visual Studio 9.0\VC\BIN\cl.exe
C:\Program Files (x86)\Microsoft Visual Studio 9.0\VC\BIN\link.exe /DLL /nologo /INCREMENTAL:NO /LIBPATH:C:\Program Files (x86)\python32\libs /LIBPATH:C:\Program Files (x86)\python32\PCbuild /EXPORT:PyInit_test_ build\temp.win32-3.2\Release\test_.obj /OUT:C:\almar\projects\py\cmu1394\test_.pyd /IMPLIB:build\temp.win32-3.2\Release\test_.lib /MANIFESTFILE:build\temp.win32-3.2\Release\test_.pyd.manifest
Found executable C:\Program Files (x86)\Microsoft Visual Studio 9.0\VC\BIN\link.exe
LINK : fatal error LNK1181: cannot open input file 'Files.obj'