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When a package list is built using Unicode strings, distutils fails to build the package with a TypeError.
This patch alternatively checks for 'unicode' as the instance type and also prints the type in the type error for easier debugging.

Thanks for the report and patch. I think distutils was not written with Unicode in mind, or maybe even before Python had a unicode type. Technically, http://docs.python.org/distutils/setupscript#additional-meta-data says that unicode is not allowed for metadata fields (nothing is said about py_modules, packages and the like), but we’ve fixed a couple of bugs related to unicode, so I think this is a reasonable request. Can you post (part of) your failing setup script?

From py-logilab-common 0.57.1 port for FreeBSD. No patches applied:
package init file './test/__init__.py' not found (or not a regular file)
Traceback (most recent call last):
 File "setup.py", line 170, in <module>
 install()
 File "setup.py", line 166, in install
 **kwargs
 File "/usr/local/lib/python2.7/distutils/core.py", line 152, in setup
 dist.run_commands()
 File "/usr/local/lib/python2.7/distutils/dist.py", line 953, in run_commands
 self.run_command(cmd)
 File "/usr/local/lib/python2.7/distutils/dist.py", line 972, in run_command
 cmd_obj.run()
 File "/usr/local/lib/python2.7/distutils/command/build.py", line 127, in run
 self.run_command(cmd_name)
 File "/usr/local/lib/python2.7/distutils/cmd.py", line 326, in run_command
 self.distribution.run_command(command)
 File "/usr/local/lib/python2.7/distutils/dist.py", line 972, in run_command
 cmd_obj.run()
 File "/usr/local/lib/python2.7/distutils/command/build_py.py", line 93, in run
 self.build_packages()
 File "/usr/local/lib/python2.7/distutils/command/build_py.py", line 372, in build_packages
 self.build_module(module, module_file, package)
 File "/usr/local/lib/python2.7/distutils/command/build_py.py", line 333, in build_module
 "'package' must be a string (dot-separated), list, or tuple")
TypeError: 'package' must be a string (dot-separated), list, or tuple
*** Error code 1
Stop in /usr/src/ports/devel/py-logilab-common.
This package's setup.py is auto-generating the packages list with the current working directory.
def get_packages(directory, prefix):
 """return a list of subpackages for the given directory"""
 result = []
 for package in os.listdir(directory):
 absfile = join(directory, package)
 if isdir(absfile):
 if exists(join(absfile, '__init__.py')) or \
 package in ('test', 'tests'):
 if prefix:
 result.append('%s.%s' % (prefix, package))
 else:
 result.append(package)
 result += get_packages(absfile, result[-1])
 return result
...
packages = [modname] + get_packages(os.getcwd(), modname)
kwargs['packages'] = packages
setup(...
 **kwargs)
where modname is imported from __pkginfo__.py:
distname = 'logilab-common'
modname = 'common'
What's interesting is there is no explicit unicode string definition within this package list gerneration, yet the final packages list looks like:
['logilab.common', u'logilab.common.test', u'logilab.common.test.data', u'logilab.common.test.data.find_test', u'logilab.common.ureports']

I've the same problem today with package https://pypi.python.org/pypi/httpretty/0.7.1 but only when I try to install one of my project which requires httpretty, if I try to install it directly it works like a charm.
pip install httpretty -> works
pip install mypkg -> doesn't works
Looks like HTTPretty is using __file__ variable in setup.py (https://github.com/gabrielfalcao/HTTPretty/blob/master/setup.py#L35) and pip seems to pass the file as unicode:
http://0bin.net/paste/dQfsSAmguWNYyY7w#0O/gcrWA44wKicfTdsGT4KqRYhbZLyhN9BUXNQD1XZA=
At the last line: "__file__=u'/home/lothiraldan/.virtualenvs/test/build/httpretty/setup.py'"

It’s strange that this would happen when installing as a dependency and not when installing directly. Pip can change faster than stdlib is released, could you report the bug to them and see if it’s possible to pass __file__ as a byte string?

An issue has been opened in pip repository: https://github.com/pypa/pip/issues/1441 

Distutils is now deprecated (see PEP 632) and all tagged issues are being closed. From now until removal, only release blocking issues will be considered for distutils.
If this issue does not relate to distutils, please remove the component and reopen it. If you believe it still requires a fix, most likely the issue should be re-reported at https://github.com/pypa/setuptools