I confirm this. The following lines in msi.py seem to be the cause of the change:
#dlldir = PyDirectory(db, cab, root, srcdir, "DLLDIR", ".") #install python30.dll into root dir for now dlldir = root
They were added by r61109: " Bundle msvcr90.dll as a "private assembly". " but I don't know if simply restoring the previous value will work in every case: If the C Run-Time is installed "privately", then python26.dll must stay in c:\python26.
Ah, ok. Maybe I can find some time next week to look into this, but I wouldn't mind if anybody else did.
In any case, thanks for this research so far (and too bad that nobody noticed throughout all the beta releases).