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Here is the reproduction process. Get Windows box running Vista 64-bit.
Download the Python 2.6 64-bit version. Write a script that imports
escape from saxutils. See this:
C:\Python26>python.exe example_xml_script.py > out.xml
Traceback (most recent call last):
 File "example_xml_script.py", line 11, in <module>
 from xml.sax.saxutils import escape
 File "C:\Python26\lib\xml\sax\saxutils.py", line 6, in <module>
 import os, urlparse, urllib, types
 File "C:\Python26\lib\urllib.py", line 26, in <module>
 import socket
 File "C:\Python26\lib\socket.py", line 46, in <module>
 import _socket
ImportError: DLL load failed: The application has failed to start
because its side-by-side configuration is incorrect. Please see the
application event log for more detail.
EventViewer says:
Activation context generation failed for "C:\Python26\DLLs\_socket.pyd".
Error in manifest or policy file
"C:\Python26DLLs\Microsoft.VC90.CRT.MANIFEST" on line 12. 
The value "../msvcr90.dll" of attribute "name" in element
"urn:schemas-microsoft-com:asm.v1^file" is invalid.
Go download the MSVCRT directly and install it:
http://www.microsoft.com/downloads/details.aspx?familyid=9B2DA534-3E03-4391-8A4D-074B9F2BC1BF&displaylang=en
Then the problem goes away.
This issue is particular only to the Python 2.6 64-bit version, as the
32-bit version runs just fine.