Hmm, this is still broken in python2.6 2.6.4~rc2-0ubuntu1 on karmic!

dhugg...@gorb:~/Projects/Sphinx/sphinxbase/amd64-linux/python$ python2.6 
setup.py install --prefix=/usr/local
running install
running build
running build_ext
running install_lib
creating /usr/local/local
error: could not create '/usr/local/local': Permission denied

-- 
distutils appends '/local' to to user-specified install prefix
https://bugs.launchpad.net/bugs/338395
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