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Reported in setuptools #5, an error now occurs when using distribute_setup.py to upgrade from older versions of setuptools. This is a regression with 0.6.44.
Fixed in setuptools ddca71ae5ceb and released as 0.6.45.
I can confirm that buildout's bootsrap works via:
$ mkdir /tmp/buildout
$ cd /tmp/buildout
$ touch buildout.cfg
$ wget http://downloads.buildout.org/2/bootstrap.py
$ /opt/Python-2.7.4/bin/virtualenv /tmp/venv
$ /tmp/venv/bin/python bootstrap.py