1. I haven't installed a local package 
3. There is no /usr/local/lib/python2.4 directory on my system.
4. The problem remained after 'sudo aptitude reinstall deskbar-applet'
5. According to synaptics the installed version is 2.17.91-0ubuntu3 (feisty)
6. Last night it was still working, I ran update-manager, and upgraded to 
2.17.91-0ubuntu3
7. I rebooted to see what all updates did
8. It stopped working

To quote you "the /usr/local version is not coming from an Ubuntu
package" .. i think it is .. perhaps this is related to my problem?

The only non-ubuntu repository I use is:
   deb http://ubuntu.beryl-project.org feisty main

I have not installed software from any other repository...

-- 
Latest package-update (2.17.91-0ubuntu3) on Feisty destroys all functionality
https://launchpad.net/bugs/86681

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