I figured maybe it was something to do with MSVC 90 dlls.  

<pre>
C:\apsw>dir \*msvc*90* /s
 Volume in drive C has no label.
 Volume Serial Number is F4A5-1661

 Directory of C:\MinGW\lib

12/27/2007  08:23 AM           554,136 libmsvcr90.a
12/27/2007  08:23 AM           555,910 libmsvcr90d.a
               2 File(s)      1,110,046 bytes

 Directory of
C:\WINDOWS\WinSxS\x86_Microsoft.VC90.CRT_1fc8b3b9a1e18e3b_9.0.21022.8_x-ww_d08d0375

11/06/2007  08:23 PM           224,768 msvcm90.dll
11/07/2007  01:19 AM           568,832 msvcp90.dll
11/07/2007  01:19 AM           655,872 msvcr90.dll
               3 File(s)      1,449,472 bytes

 Directory of
C:\WINDOWS\WinSxS\x86_Microsoft.VC90.CRT_1fc8b3b9a1e18e3b_9.0.30411.0_x-ww_71382c73

04/10/2008  10:52 PM           225,280 msvcm90.dll
04/11/2008  04:32 AM           572,928 msvcp90.dll
04/11/2008  04:32 AM           655,872 msvcr90.dll
               3 File(s)      1,454,080 bytes

     Total Files Listed:
               8 File(s)      4,013,598 bytes
               0 Dir(s)  22,924,242,944 bytes free
</pre>

Process Explorer shows Python 2.6 exe using MSVCR90.dll from the
71382c73 WinSxS directory.  Using Process Monitor for the 'import apsw'
invocation shows the cp437 encoding being looked for and found, then the
apsw.pyd being looked for, found, opened, LoadImage, ReadFile and
CloseFile.  Then a file named angle bracket stdin angle bracket it
looked for and not found (presumably to show the error message).