Sounds like something has installed Python 2.4.3 behind your back, and set that to be the default.
Short term, try running your script explicitly with Python 2.6 like this:
c:Python26python.exe setup.py ...
Long term, you need to check your system PATH (which it sounds like you've already done) and your file associations, like this:
C:Users
jh>assoc .py
.py=Python.File
C:Users
jh>ftype Python.File
Python.File="C:Python26python.exe" "%1" %*
Simply removing Python 2.4.3 might be a mistake, as presumably something on your system is relying on it. Changing the PATH and file associations to point to Python 2.6 probably won't break whatever thing that is, but I couldn't guarantee it.
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