mkvirtualenv fails: unknown url type

I get the following error when I try creating a virtualenv using either mkvirtualenv or virtualenv. Any one with an idea on on what is going wrong?

All the folders with the ValueError exist

$  virtualenv demo
New python executable in demo/bin/python2.7
Also creating executable in demo/bin/python
Installing setuptools, pip...
  Complete output from command /home/vyura/.virtualenvs/demo/bin/python2.7 -c "import sys, pip; sys...d\"] + sys.argv[1:]))" setuptools pip:
  Exception in thread Thread-1:
Traceback (most recent call last):
  File "/usr/local/lib/python2.7/threading.py", line 808, in __bootstrap_inner
    self.run()
  File "/usr/local/lib/python2.7/threading.py", line 761, in run
    self.__target(*self.__args, **self.__kwargs)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/index.py", line 245, in _get_queued_page
    page = self._get_page(location, req)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/index.py", line 335, in _get_page
    return HTMLPage.get_page(link, req, cache=self.cache)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/index.py", line 452, in get_page
    resp = urlopen(url)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/download.py", line 85, in __call__
    response = urllib2.urlopen(self.get_request(url))
  File "/usr/local/lib/python2.7/urllib2.py", line 127, in urlopen
    return _opener.open(url, data, timeout)
  File "/usr/local/lib/python2.7/urllib2.py", line 396, in open
    protocol = req.get_type()
  File "/usr/local/lib/python2.7/urllib2.py", line 258, in get_type
    raise ValueError, "unknown url type: %s" % self.__original
ValueError: unknown url type: .

Exception in thread Thread-2:
Traceback (most recent call last):
  File "/usr/local/lib/python2.7/threading.py", line 808, in __bootstrap_inner
    self.run()
  File "/usr/local/lib/python2.7/threading.py", line 761, in run
    self.__target(*self.__args, **self.__kwargs)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/index.py", line 245, in _get_queued_page
    page = self._get_page(location, req)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/index.py", line 335, in _get_page
    return HTMLPage.get_page(link, req, cache=self.cache)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/index.py", line 452, in get_page
    resp = urlopen(url)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/download.py", line 85, in __call__
    response = urllib2.urlopen(self.get_request(url))
  File "/usr/local/lib/python2.7/urllib2.py", line 127, in urlopen
    return _opener.open(url, data, timeout)
  File "/usr/local/lib/python2.7/urllib2.py", line 396, in open
    protocol = req.get_type()
  File "/usr/local/lib/python2.7/urllib2.py", line 258, in get_type
    raise ValueError, "unknown url type: %s" % self.__original
ValueError: unknown url type: /home/vyura/lib/python2.7

Exception in thread Thread-3:
Traceback (most recent call last):
  File "/usr/local/lib/python2.7/threading.py", line 808, in __bootstrap_inner
    self.run()
  File "/usr/local/lib/python2.7/threading.py", line 761, in run
    self.__target(*self.__args, **self.__kwargs)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/index.py", line 245, in _get_queued_page
    page = self._get_page(location, req)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/index.py", line 335, in _get_page
    return HTMLPage.get_page(link, req, cache=self.cache)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/index.py", line 452, in get_page
    resp = urlopen(url)
  File "/home/vyura/lib/python2.7/pip-1.1-py2.7.egg/pip/download.py", line 85, in __call__
    response = urllib2.urlopen(self.get_request(url))
  File "/usr/local/lib/python2.7/urllib2.py", line 127, in urlopen
    return _opener.open(url, data, timeout)
  File "/usr/local/lib/python2.7/urllib2.py", line 396, in open
    protocol = req.get_type()
  File "/usr/local/lib/python2.7/urllib2.py", line 258, in get_type
    raise ValueError, "unknown url type: %s" % self.__original
ValueError: unknown url type: /home/vyura/lib/python2.7/virtualenv_support

Ignoring indexes: http://pypi.python.org/simple/
Downloading/unpacking setuptools
  Could not find any downloads that satisfy the requirement setuptools
No distributions at all found for setuptools
Storing complete log in /home/vyura/.pip/pip.log
----------------------------------------
...Installing setuptools, pip...done.
Traceback (most recent call last):
  File "/home/vyura/bin/virtualenv", line 9, in <module>
    load_entry_point('virtualenv==1.11.6', 'console_scripts', 'virtualenv')()
  File "/home/vyura/lib/python2.7/virtualenv.py", line 824, in main
    symlink=options.symlink)
  File "/home/vyura/lib/python2.7/virtualenv.py", line 992, in create_environment
    install_wheel(to_install, py_executable, search_dirs)
  File "/home/vyura/lib/python2.7/virtualenv.py", line 960, in install_wheel
    'PIP_NO_INDEX': '1'
  File "/home/vyura/lib/python2.7/virtualenv.py", line 902, in call_subprocess
    % (cmd_desc, proc.returncode))
OSError: Command /home/vyura/.virtualenvs/demo/bin/python2.7 -c "import sys, pip; sys...d\"] + sys.argv[1:]))" setuptools pip failed with error code 1