Open the folder containing the expanded archive.
Double-click on the file "setup.py", which should be a "Python module" file.
If the file isn't a "Python module", the line endings are probably also wrong, and you will need to set up your system to recognize ".py" file extensions as Python files. See http://gotools.sourceforge.net/mac/python.html for detailed instructions. Once set up, it's easiest to start over by expanding the archive again.
The distutils options window will appear. From the "Command" popup list choose "install", click "Add", then click "OK".
If install.py is a "Python module" (see step 2 above if it isn't), you can run it (double-click) instead of the above. The distutils options window will not appear.