HOWTO Install PIL on OS X Leopard
OS X Leopard comes with Python 2.5.1 and lacks the PIL package for image manipulation. Google App Engine's local SDK uses PIL to emulate its image manipulation features.
The instructions on Google's installation page for PIL are incorrect.
To install PIL, follow these instructions by Matt Kangas instead. (Thanks, Matt!) :)
The only thing I'd add to that is that the instructions won't work unless you've got your .bash_profile file set up to read your .bashrc file.
So, make sure you have the following code in the .bash_profile file in your home folder (cd ~):
if [ -f ~/.bashrc ]; then . ~/.bashrc fi