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I am using python 2.7.2 installed via the pre-built installer package, and my SDK version is v7.1.
1) The MSSdk environment variable is not set by lastest SDK's SetEnv.cmd anymore, but distutils still check for it.
2) I have also install MSVC 2010 Express Edition, and its vcvarsall.bat
can't be found.
Off-side question:
a) Can i use different version of MSVC from which python is built for extension development ?
b) Can i use mingw compiler to develop extension for the pre-built windows binary python ?

> 1) The MSSdk environment variable is not set by lastest SDK's 
> SetEnv.cmd anymore, but distutils still check for it.
This is intentional. Older SDKs still set the variable, so there
is nothing wrong with checking it.
> 2) I have also install MSVC 2010 Express Edition, and its 
> vcvarsall.bat can't be found.
MSVC 2010 is not supported for building Python 2.7 extension modules.
> a) Can i use different version of MSVC from which python is built for 
> extension development ?
No. Because of the way the MSVCRT works, this can cause crashes.
> b) Can i use mingw compiler to develop extension for the pre-built 
> windows binary python ?
Yes, in principle. In practice, it may fail because of gcc limitations.

Thanks for your replying.
Here is my understanding of how the compiler chosen logic works, correct me if i am wrong:
1) If using MSVC, we should ALWAYS stick the compiler to the version which python was compiled with;
2) But we can change SDK version through DISTUTILS_USE_SDK with SetEnv.cmd already called.
3) It's the compiler version that matters, not SDK version.
But from distutils source:
if "DISTUTILS_USE_SDK" in os.environ and "MSSdk" in os.environ and ...:
 ^^^^^
does this mean i can not use lastest SDK since it does not set MSSdk variable?

DISTUTILS_USE_SDK really means "shut up, I know what I'm doing". So if this is the case (i.e. you *really* know what you are doing), just set MsSdk as well.
I don't actually know whether the latest SDK is able to build correct extensions for Python 2.7 - I haven't looked at the latest SDK. It may be that MS stopped setting MsSdk for a reason.

In any case, it appears that there is no bug report in this issue, so I'm closing this as "works for me".