I think you do not have a visual C ++ compiler installed or a compiler, not in PATH.
If you have mingw32, you can pass the -c mingw32
And mysql-python is available as binary code in windows , you may not need to compile yourself.
UPDATE : OP uses python 2.6, there are no binaries for 1.2.3 in the mysql-python page for windows.
Here is the one I compiled earlier
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