Thank you all for your help!! turn out the problem was in the psycopg2 module!
when I tried: import psycopg2 dir(psycopg2) I got only 4-5 functions, and no 'connect' function! re-installed pstcopg2 and re-launched web2py and it worked like magic! now when I do dir(psycopg2) I get all the functions have no idea why the psycopg module suddenly shrunk :-S