Take a look at https://github.com/getsentry/sentry for a good example. After doing 'pip install sentry', you can run the included gunicorn-based HTTP server via bin/sentry ('sentry init && sentry start'). A uWSGI-based server would have worked, too.
I like to create a virtualenv under /opt, install the package and its dependencies with pip, and then run fpm to create an RPM or DEB. Then I use Chef or Puppet to install the package, deploy config files, deploy a service script (for upstart or daemontools), and enable the service.
See also http://www.12factor.net/ for some principles on how to structure your app. These can be applied whether or not you use setuptools. For example, Heroku's Python buildpack will deploy your 12-factor app in-place using requirements.txt and Procfile in your app root, ignoring setup.py. I find 12-factor apps are easier to deploy whatever method you choose, since configs/services/logs are cleanly separated from your app itself.
You just need a quickly whipped up Fabric script, and then you deploy remotely from the command line.
A good rule of thumb is that if you have defined access points for others to consume your code with (command line tools, Python modules, or Setuptools entry points), it's a good idea to make a Python package like this. Otherwise, skip it.
I once tried to do something like this and failed and I had an impression that setuptools are not really intended for such things, but mainly for packaging plain Python modules.
Is this a right impression? If yes, what is a good way to package the whole Python based web application?