The only problem with this utility is that your executable now contains all the Python bugs. If you have separate runtime files, the runtime files can be updated with bug fixes and you don't have to recompile and redistribute your app.

I remember Joel Spolsky initiating a discussion of this:
http://www.joelonsoftware.com/articles/PleaseLinker.html

Some responses were at:
http://blogs.msdn.com/jasonz/archive/2004/01/31/65653.aspx
http://ask.slashdot.org/article.pl?sid=04/01/31/2027235&tid=156&tid=201&tid=4

I think that I lean to the side of not linking in library code since I don't want to be responsible for tracking updates to all the libraries that I use.

On the subject of bugs: I'd choose to bundle Python for those very same reasons. If I bundle everything together, then I know what I'm running with. If I rely on the customer's installation of Python, not only do I limit my customers to those that can and will install Python, but I rely on them to maintain it, and I now have every possible configuration to contend with.

If your goal is to ship Python code to Python programmers, then by all means, use their configuration. But if your goal is to distribute an application that happens to be written in Python, use py2exe.