Yea, the error author was seeing is a beginner one, because he was importing local_settings in settings, and settings in local_settings. Most circular import issues are a little more interesting.
Simple but common: http://google.com/codesearch?q=%22from+local_settings+import...
Dang, I wish someone had told me that. I use it all the time, and it works for me just fine. No circular reference errors or anything else of the sort.