A quick note on how to include system packages in the "How Do I..?" section could be helpful, though does not necessarily solve the current issue. I would be hesitant to instruct people to use the system-site-packages flag simply to have an updated version of setuptools, even with a strong word of caution. From my experience, most people generally don't have a clean pip environment outside of a virtual environment for various reasons and this could cause more confusion and undesired outcomes by encouraging use use of the system-site-packages flag.

As a side note, I do feel that the existing documentation for the system-site-packages and without-pip flags is adequate as-is (that was one of the first things I tried when debugging this issue).

Nick, could you answer a couple of questions for me? 
1) I've read that (for Python 3.5 or greater) that venv is recommended over virtualenv. Why? (Not challenging anything, just trying to understand from the perspective of someone who has used virtualenv for years and never looked back).
2) Could there be an additional argument for venv that triggers an upgrade to setuptools on virtual environment creation? Alternatively, I've looked into extending venv.EnvBuilder. We could add an example of extending this to bootstrap environment building to include a setuptools upgrade on creation for those who deem this important.