setuptools vs. distutils: why is distutils still a thing?

Have a look at this SO question. It explains all the packaging methods very well, and might help answer your question to some extent: Differences between distribute, distutils, setuptools and distutils2?

Distutils is still the standard tool for packaging in Python. It is included in the standard library (Python 2 and Python 3.0 to 3.3). It is useful for simple Python distributions, but lacks features. It introduces the distutils Python package that can be imported in your setup.py script.

Setuptools was developed to overcome Distutils' limitations, and is not included in the standard library. It introduced a command-line utility called easy_install. It also introduced the setuptools Python package that can be imported in your setup.py script, and the pkg_resources Python package that can be imported in your code to locate data files installed with a distribution. One of its gotchas is that it monkey-patches the distutils Python package. It should work well with pip. The latest version was released in July 2013.

So, as you can see setuptools should be preferred to distutils, and I see where your question comes from, however I don't see distutils losing support anytime soon, as, simply put, it is used in many cases with some popular legacy programs. And as you probably know changing these sorts of things in legacy programs can be quite a pain and come with quite a few problems, for example incompatibilities, which would then lead to the developer having to rewrite the source code. So there is that, and also the fact that distutils is a part of the standard python library whereas setuptools is not. So, if you are creating a python program, in this day and age, use setuptools, however keep in mind that without distutils, setuptools would have never existed.

is the fact that setuptools is not in the standard library the only reason

That's one reason. The following is straight from the NumPy setup.py:

if len(sys.argv) >= 2 and ('--help' in sys.argv[1:] or        sys.argv[1] in ('--help-commands', 'egg_info', '--version',                        'clean')):    # Use setuptools for these commands (they don't work well or at all    # with distutils).  For normal builds use distutils.    try:        from setuptools import setup    except ImportError:        from distutils.core import setup

So NumPy prefers setuptools if it can find it. But then SciPy used to do this, until it was patched to prefer distutils in some situations. Citing the commit log:

Setuptools sets mode +x on the test scripts, so that Nose refuses to runthem. Better not do that.

Of course, a merger between setuptools and distribute should resolve all this in due time, but many packages still need to support Python 2.6 installations.

There are several reasons we still talk about and use distutils, even though setuptools is without a doubt the better tool set.

Firstly, distutils is available everywhere. If you are looking to build a module for sharing with others, and don't have any complicated requirements, it is guaranteed to be available on your work machine. This is particularly important if you have to support older versions of python, or if you find yourself working in an unfamiliar environment.

Secondly, setuptools provides enhancements to distutils. It is therefore modeled after the distutils tool set and takes all of it's structure from there. The documentation for setuptools assumes the reader is familiar with distutils and only documents how it enhances the base tool set. You can think of it that distutils defines the dialect and setuptools enhances that dialect.

My personal approach for new projects is start with the assumption I'm going to use distutils. Only as the project grows to require a feature of setuptools do I make the upgrade. The setuptools is a drop-in-replacement for distutils, it's a one-line change to my setup.py.