Hm,  how did you run configure ? Any special options you passed to it ? Also, did you edit Modules/Setup or Modules/Setup.local ? And what are the contents of Modules/Setup.config ? That local/lib looks like a line was wrapped incorrectly, in one of those files, which makes 'makesetup' think it needs to define a module called 'local/lib'.

When in doubt, do a 'make distclean' and start from scratch, making a fresh copy of Modules/Setup.in and making sure to edit it with an editor that does not wrap lines ('joe' is my personal favorite, but YMMV ;)

(Priority lowered because the cause is highly likely to be a typo/linewrap in one of the Setup files. I added a request in PEP 42 for makesetup to grow syntax checking. Not closed yet, until it's clear that this is indeed the cause.)