To get working use following steps :
install easy_installer :
more info here : http://peak.telecommunity.com/DevCenter/EasyInstall This site should offer a link to https://pypi.python.org/pypi/setuptools#windows which contains the easy_installer exe
Once installed ensure the Scripts dir is on your System path, for me this is :
C:\Python27\Scripts
Generate the .egg file by running this command dir where oauth2 (where setup.py is located after extracting the downloaded the oauth2 file) is installed :
python setup.py install
This should generate the .egg file in 'dist' folder which you can then add via Eclipse UI.
Note : if using 7zip may need to extract download .ta.gz twice, (once on download file and again on generated extracted file) in order to generate python setup files