How do I point Blender to the version of python I have installed
Personally, I was setting my PATH environment variable so that Blender would find the most appropriate version of Python first.
Mark, your version of Blender should be compiled with a specific version of Python interfaced to it -- and THAT is the version of Python you need to install on your machine. The same issue surfaced back when Python 2.5 was reasonably new and Blender was still distributed with 2.4 compiled in -- see http://www.blender.org/forum/viewtopic.php?t=11063 ; I suspect you may be running into exactly the same issue. What message of the form "Compiled with Python 2.x" does your Blender give at the start? That should be your clue for what Python to install (unless you want to recompile Blender from source to support your favorite version of Python, of course!)