There is no South database module 'south.db.postgresql_psycopg2' for your database django
The solution i found to the above problem was just removing the south from virtual environment apart from all the changes mentioned above
You are probably still referencing to South with an import somewhere.
Just:
pip uninstall south
Then:
python manage.py runserver
And resolve import errors.
Since Django 1.7, migrations are part of the framework. Instead of using South, you probably want to migrate to django.db.migrations.
Generally speaking, you should always read release notes (for 1.7 and 1.8) when doing such an update.