Django newbie deployment question - ImportError: Could not import settings 'settings'

The app runs fine using django internal server however when I use apache + mod_python I get the below error

  File "/usr/local/lib/python2.6/dist-packages/django/conf/__init__.py", line 75, in __init__
    raise ImportError, "Could not import settings '%s' (Is it on sys.path? Does it have syntax errors?): %s" % (self.SETTINGS_MODULE, e)

ImportError: Could not import settings 'settings' (Is it on sys.path? Does it have syntax errors?): No module named settings

Here is the needed information

1) Project directory: /root/djangoprojects/mysite

2) directory listing of /root/djangoprojects/mysite

ls -ltr
total 28
-rw-r--r-- 1 root root  546 Aug  1 08:34 manage.py
-rw-r--r-- 1 root root    0 Aug  1 08:34 __init__.py
-rw-r--r-- 1 root root  136 Aug  1 08:35 __init__.pyc
-rw-r--r-- 1 root root 2773 Aug  1 08:39 settings.py
-rw-r--r-- 1 root root 1660 Aug  1 08:53 settings.pyc
drwxr-xr-x 2 root root 4096 Aug  1 09:04 polls
-rw-r--r-- 1 root root  581 Aug  1 10:06 urls.py
-rw-r--r-- 1 root root  314 Aug  1 10:07 urls.pyc

3) App directory : /root/djangoprojects/mysite/polls

4) directory listing of /root/djangoprojects/mysite/polls

ls -ltr
total 20
-rw-r--r-- 1 root root 514 Aug  1 08:53 tests.py
-rw-r--r-- 1 root root  57 Aug  1 08:53 models.py
-rw-r--r-- 1 root root   0 Aug  1 08:53 __init__.py
-rw-r--r-- 1 root root 128 Aug  1 09:02 views.py
-rw-r--r-- 1 root root 375 Aug  1 09:04 views.pyc
-rw-r--r-- 1 root root 132 Aug  1 09:04 __init__.pyc

5) Anywhere in the filesystem running import django in python interpreter works fine

6) content of httpd.conf

<Location "/mysite">
    SetHandler python-program
    PythonHandler django.core.handlers.modpython
    SetEnv DJANGO_SETTINGS_MODULE settings
    PythonOption django.root /mysite
    PythonPath "['/root/djangoprojects/', '/root/djangoprojects/mysite','/root/