It will not work with setuptools, because setuptools will install pexpect as an egg, and then add it to easy-install.pth, which is checked only on startup. You can get around this in various ways, but it's easier to instead use pip to install pexpect:
>>> import pexpect
Traceback (most recent call last):
  File "<stdin>", line 1, in <module>
ImportError: No module named pexpect
>>> import os
>>> os.system('bin/pip install pexpect')
Downloading/unpacking pexpect
  Downloading pexpect-2.4.tar.gz (113kB): 113kB downloaded
  Running setup.py egg_info for package pexpect
Installing collected packages: pexpect
  Running setup.py install for pexpect
Successfully installed pexpect
Cleaning up...
0
>>> import pexpect
>>>
pip will install modules in a less magical (but perhaps messier) way, and the modules end up on sys.path directly, so that works.