Complete user-error. Although I did reinstall with python 2.5.4 from python.org, and then the binary distribution of web2py, the probably was a result of me trying to install instantpress_beta5.zip.
I found the proper file: web2py.app.instantpress_beta5.w2p Installation was without issue. Sorry about that. @Anthony: The reason that I am using python 2.5 is because I want web2py to play nicely with App Engine. If I am limiting myself to learning web2py first and foremost, does it matter that I am using python 2.5?
