I am now able to answer my own question. The messages about __init.py__ are unimportant output of the script I used to install web2py on sci linux. The install worked fine.
I was confused about how to invoke the admin interface and one idea was that my install was imperfect. I hooked web2py with apache and didn't realize that I must use the built-in web-server for development and the admin interface. All is well.
