The error you are getting there is to do with the API change in 1.9 (the dev version). If you change
QgsMapLayerRegistry.instance().addMapLayer(layer) to QgsMapLayerRegistry.instance().addMapLayers([layer]) it will work again. QGIS will use the Python installed with OSGeo4W, I don't think also having standalone copy of Python installed will cause any issues. - Nathan
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