Confirmed on Hardy Heron 08.04 Alpha 4 (A4).  Here is more information:

# locate site.py
/etc/python2.5/site.py
/usr/lib/python2.5/site.pyc
/usr/lib/python2.5/site.py
# dir  /etc/python2.5/site.py*
-rw-r--r-- 1 root root 14925 2007-04-12 17:00 /etc/python2.5/site.py
# dir -d /etc/python2.5
drwxr-xr-x 2 root root 4096 2007-05-26 13:40 /etc/python2.5

Notice that locate (generated before the upgrade that broke python)
shows site.pyc, which after the upgrade does not exists.  I do not know
why python is not capable to compile and generate that file, even when
running as root.


# python
'import site' failed; use -v for traceback
Python 2.5.2 (r252:60911, Feb 26 2008, 12:39:36) 
[GCC 4.2.3 (Ubuntu 4.2.3-2ubuntu1)] on linux2
Type "help", "copyright", "credits" or "license" for more information.
>>> 

** Changed in: ubuntu
       Status: New => Confirmed

-- 
python update failed with:'import site' failed; use -v for traceback 
https://bugs.launchpad.net/bugs/195813
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