Of course you can move the development directory around. Distutils changes the paths to the python that you should run with when you run it. It's in Grok run when you run the buildout. Move and re-run the bootstrap and the buildout. Done!
Distutils changes the path to the Python you use to run distutils with. If it didn't, then you might end up installing a library in one python version, but when you try to run the script it would fail, because it would run with another python version that didn't have the library.
That's not insanity, it's in fact the only sane way to do it.
Update:
If you know what you are doing, you can do this:
/path/to/install/python setup.py build -e "/the/path/you/want/python" install
Make sure you clean the build directory first though. :)
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