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When using either the ext_package keyword argument to setup, or when
using the "pkg.name" module name notation to Extension instances,
distutils installs the compiled extensions into the appropriate package
directory.
However, distutils does not create an __init__.py file in that
directory, so it is not actually a package and is not importable.

Thanks for the report. To the best of my knowledge, distutils never generates Python files, and the docs for ext_modules or ext_package don’t imply __init__.py will be generated. IOW, for "pkg.foo", you’re supposed to have pkg/__init__.py and pkg/foo.c.
I think this bug is invalid, or is a request for a small doc improvement. Do you agree?

Reclassifying as request for doc enhancement. I’ll check the distutils2 doc and add a line about this problem if I find the text is not clear enough.
Someone finding this report thanks to the "easy" keyword can feel free to propose a patch.

We’re working on a patch on the core-mentorship list.

> We’re working on a patch on the core-mentorship list.
Éric, I emailed the diff to the Core-Mentorship list, but since there was no reply I will just attach it here. Please review patch and let me know if you want any changes.

>> We’re working on a patch on the core-mentorship list.
> I emailed the diff to the Core-Mentorship list, but since there
> was no reply I will just attach it here.
I added that message here to avoid someone else working on the same bug. I did not reply to the mailing list because it’s not easy to review emailed patches and I don’t have Internet access each day.
> Please review patch and let me know if you want any changes.
Done. You should have received an email; if not, follow the link titled "review" on the right of your patch.

Submitted v2 of my patch after reading Éric's review of my first.

You did not reply to my first question on apiref.rst, and you did not rewrap your lines to 80 chars :)

Responded to first question in apiref and uploaded a new patch that wraps lines at 80 characters.

setupscript did not have the changes that were made in apiref. v4 is now consistent and line wrapping at 80 chars.

Looks good, will commit.

New changeset f84040b11211 by Éric Araujo in branch 'default':
Document that packaging doesn’t create __init__.py files (#3902).
http://hg.python.org/cpython/rev/f84040b11211 

I thought about the wording again and committed a different version. I also decided not to backport to distutils; see the commit message for a rationale. Thanks for the help!