This prevents numerous packages from installing correctly including the
current 0.6c11 version of setuptools. When the installer runs it reports
that it can't find the version of python installed from
python-2.6.4.amd64.msi.

It seems to be looking for it in:

[HKEY_LOCAL_MACHINE\SOFTWARE\Wow6432Node\Python\PythonCore\2.6\InstallPath]
@="C:\\Python26\\"

.. rather than the:
[HKEY_LOCAL_MACHINE\SOFTWARE\Python\PythonCore\2.6\InstallPath]
@="C:\\Python26\\"

.. that the python installer puts in the registry.

This is related to the conversation in this thread:

http://www.mail-archive.com/distutils-sig@python.org/msg10512.html

And to quote from http://bugs.python.org/setuptools/issue2 :

"The issue is with the .exe header used by the bdist_wininst command;
setuptools doesn't generate this wrapper itself; it uses the one
supplied by the distutils, so non-setuptools packages will have the same
problem.  Without a fixed .exe header in the Python installation, *all*
bdist_wininst-generated .exe installers (setuptools or distutils) will
have the same problem."